A long-term play on the growing specialist healthcare and telemedicine services in Asia Pacific

With Singapore has been progressing well under Phase 2 of the post-circuit breaker opening, the management has seen pent up demand returning for elective procedures and aesthetics, although they are cautious on whether this momentum will continue. Nevertheless, with some pent up demand for services under the Diagnostic & Aesthetics segment returning, we believe that SMG should be able to deliver better results in the second half of the year.

Moreover, SMG is likely to experience organic growth this year, due to the opening of a new Women’s and Children’s Health clinic in eastern Singapore in 4Q 2020, and the on-boarding of new specialists in 3Q2020 and 4Q2020.

In terms of medical tourism, which takes up 15% to 20% of SMG’s turnover, we believe that it will take some time recover to pre-COVID levels. With many countries in the region still implementing border control measures, it would be overly optimistic to expect a full recovery by the end of this year.

The current operating environment for SMG remains challenging, but there are certain bright spots, which we will be taking a deeper look at for the remainder of this article.

Expanding footprint in Asia Pacific

Other than its Singapore clinics, SMG also has overseas ventures that are located in Australia, Indonesia, and Vietnam (Table 1).

Table 1: SMG’s overseas ventures

In 1H2020, the share of results of joint ventures and associates fell -78%, suggesting that its overseas ventures were also affected by the COVID-19 pandemic. Nevertheless, with growing demand for healthcare services in the longer term, the management has plans to grow its footprint overseas.

The growth initiatives include: (1) a third CarePlus Vietnam clinic expected to open in Ho Chi Minh City in 4Q 2020; (2) a second Ciputra SMG Eye Clinic expected to open by the end of 2020; (3) City Fertility Clinic, which is in the process of setting up its second Melbourne IVF centre. With about SGD 8.5 million of undrawn committed borrowing facilities, SMG still has sufficient debt headroom to explore further overseas inorganic growth opportunities.

The rapid economic development in emerging Asian markets like Vietnam and Indonesia has boosted demand for better quality and specialised healthcare services. Such demand is supported by favourable trends such as a growing middle class.

According to World Bank, more than half of the Vietnamese population is projected to join the global middle class by 2035. In 2019, Vietnam’s middle class accounted for only 13% of the population. This represents a compound annual growth rate (CAGR) of approximately 9%. On the supply side, private clinics and hospitals have been popping up in major cities such as Hanoi and Ho Chi Minh City in Vietnam to cater to this booming middle class.

Figure 2: Emerging middle class in Vietnam

Source: General Statistics Office of Vietnam

Over in Indonesia, World Bank has recently classified it as an upper-middle income country. In the past 15 years, its middle class segment has grown from 7% to 20% of the population (Figure 3). Despite this outstanding progress, World Bank highlighted that there is still 45% of the population looking to move from the aspiring middle class segment to the middle class segment. This suggests that there is plenty of room to expand Indonesia’s middle class segment.

Figure 3: Nearly half of Indonesia’s population is in the aspiring middle class segment

Lastly, in Australia, according to the Fertility Society of Australia, one in six Australian couples suffer from infertility. Coupled with a rising maternal age, this has contributed to a rise in fertility treatment options, particularly in-vitro fertilisation (IVF) treatments. It is worthy to note that SMG’s overseas venture, City Fertility, is one of the largest fertility clinic in Australia apart from Virtus Health Limited, Monash IVF Group, and Genea Limited.

However, we would also like to keep in mind that the COVID-19 pandemic is likely to cause a temporary drop in demand for fertility treatments, due to the uncertain economic conditions affecting discretionary spending decisions like expensive IVF treatments, as well as the health risks that COVID-19 may cause for pregnant women.

Nevertheless, in the longer term, the outlook for fertility treatments in Australia is forecasted to perform modestly as the continued support from the Australian government’s Medicare and Extended Medicare Safety Net (EMSN) programs will continue to underpin the accessibility and affordability of fertility treatments.

Overall, we think that SMG’s overseas growth initiatives are a step in the right direction. Medical tourism in Singapore has been slowing down over the years due to high medical inflation and increasing competition from neighbouring countries. Having more overseas ventures would likely mean that SMG can reduce its reliance on deriving revenue from its medical tourists in Singapore, whilst tapping on the immense growth potential in emerging markets like Vietnam and Indonesia.

Riding on the increasing adoption of telemedicine services

Although telemedicine services have gained traction only recently, they have been around for quite some time. Names like Doctor Anywhere or Doctor World would probably ring a bell.

You may or may not have heard of HiDoc (Figure 4). HiDoc is a telemedicine platform that SMG holds a 80% stake in. Launched on 31 January 2019, way before the outbreak of COVID-19, HiDoc is a telemedicine platform that provides consultation for specialist healthcare and general healthcare over video conferencing or a call in Singapore.

Figure 4: How HiDoc works