DBS Group Research has initiated “buy” on Econ Healthcare (Asia) with a target price of 40 cents.
The target price represents a 33% upside to the group’s last-closed price of 30 cents on Sept 10.
Calling it a play on the “golden silver economy”, analyst Paul Yong sees the stock as currently trading at an “undemanding valuation” at 22.0 times FY2022 price-to-earnings (P/E).
The figure is currently below the median of Econ Healthcare’s peers’ of 23.9 times, he writes in a Sept 13 report.
See also: Econ Healthcare to open second nursing home in China
Econ Healthcare (Asia) is a leading premium private nursing home operator in Singapore and Malaysia.
The group announced that it planned to relist on the Singapore Exchange (SGX) in 2021, nearly a decade after it delisted in 2012.
Econ Healthcare (Asia) launched its initial public offering (IPO) on April 9, 2021. The shares, comprising a placement of 48.2 million offering shares and 1.8 million offering shares by way of a public offer, were listed at 28 cents apiece.
To Yong, the counter looks to be a beneficiary of the ageing population trends. According to him, the private nursing home industry is estimated to grow at a compound annual growth rate (CAGR) of 13.6% in Singapore, 11.5% in Malaysia and 16.6% in China from 2020 to 2024.
Currently, Econ’s growth in Singapore will be driven by the commencement of the Build Own Lease (BOL) Henderson centre by FY2023 and BOL Jurong centre with 732 beds in FY2026.
The group will see growth in Malaysia and China from the ramp-up of nursing homes in Puchong in Malaysia, as well as Chongqing, Changshou and Chengdu in China by FY2023. In total, the nursing homes in Malaysia and China will bring an additional 862 beds.
Yong is also positive on Econ’s firm earnings outlook, which is supported by government tender wins.
“We project Econ to achieve a net profit CAGR of 12% over FY2021- FY2024 and 15% over FY2021-FY2026 as contributions from the BOL centres in Henderson and Jurong kick in from FY2023 and 2025 (FY2026) respectively,” he says.
On the flip side, key risks to the counter include lower occupancy rates, higher-than-expected staff costs, competition, the changes in level of subsidies in Singapore and ownership risk in Malaysia.
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Shares in Econ Healthcare (Asia) closed 1.5 cents higher or 5% up at 31.5 cents, with an FY2021 P/B of 1.9 times and a dividend yield of 2.0%.
Photo: Samuel Isaac Chua/The Edge Singapore