SINGAPORE (April 20): OCBC Investment Research is remaining “neutral” on Singapore’s healthcare sector on the observation that China remains an attractive choice for growth among local private healthcare companies despite challenges abound.

In a sector report issued on Thursday, lead analyst Jodie Foo notes how tapping on new markets has become “strategically important for private healthcare companies to sustain growth in the long run”, especially against a backdrop of rising competition from both its private peers and local public healthcare institutions.

For instance, Raffles Medical Group (RMG) has a 400-bed hospital in Shanghai’s Pudong New Area in the pipeline, while its development of a 700-bed hospital in Liangjiang New Area of Chongqing, China, is targeted for completion in 2Q18.

“Both hospitals are situated in China’s economic development areas, and the latter could be poised to enjoy a potentially significant addressable patient population given Chongqing’s economic developments and its stance as a major beneficiary of China’s Silk Road initiatives,” comments Foo.

He also identifies patients from China as another potential source of medical tourism, particularly in the case of Health Management International’s (HMI) hospital in Malacca, Malaysia.

The planned Melaka Gateway venture between Malaysia and China, coupled with developments such as increasing direct flight routes from China to Malacca International Airport, signals potential growth in patients from China, he adds.

RMG and HMI have both been rated “buy” with fair values of $1.60 and 80 cents respectively, as well as noted for their strong management team which the analyst says OCBC is “heartened” by.

“However, time will tell on whether such expansions could be successful… we are cognisant of the risks relating to execution and expenses taking a prolonged toll on profitability,” he cautions.

As at 12.40pm, shares of RMG and HMI are trading at $1.43 and 64 cents respectively.