Investors favour stability and resilience in companies, and two industries that can offer these are healthcare and education. In particular, healthcare is viewed as being “recession-proof” as people still fall sick and need to consult a doctor or visit a hospital whether economic times are good or bad.
Though healthcare is deemed to be a resilient industry, investors still need to be discerning when it comes to sifting through such companies for potential investment ideas. Healthcare, as an all-encompassing term, also includes many sub-categories and sub-sectors. Some of these may be subject to strong competitive forces due to lower barriers to entry. When investing, it’s important to be aware of the risks and not just focus on the merits of the company in question.
Here are three healthcare companies I believe have strong growth prospects (although they are not without risks).
1. Top Glove Corporation Berhad
Top Glove Corporation Berhad (SGX: BVA) is the world’s largest manufacturer of rubber and nitrile gloves for the healthcare industry. The group has 42 factories as of 26 September 2019 in Malaysia (37), Thailand (4), and China (1) with a glove production capacity of 63.9 billion pieces per annum. The group has 2,000 customers worldwide and exports to more than 195 countries.
As more countries grow and industrialise, the middle class will grow in tandem and demand more medical services. This, in turn, will lead to the growth in medical service providers such as clinics and hospitals, thus increasing the demand for rubber gloves. According to Top Glove, glove demand is set to grow by 10% yearly, and the group has committed to expanding its capacity. Total glove capacity is set to jump to 84.1 billion pieces per annum by the end of 2020.
Risks for the company include soaring raw material prices and stronger competition from China manufacturers affecting selling prices.
2. Raffles Medical Group Ltd
Raffles Medical Group Ltd (SGX: BSL) operates the flagship Raffles Hospital in Singapore as well as a chain of clinics under the RMG brand. In China, RMG has just finished construction of and started operations for a new hospital in Chongqing, while construction is underway for a second China hospital in Shanghai, set to begin operations in early 2020.
RMG is priming for growth in China by embarking on an ambitious expansion plan to build greenfield hospitals in both Chongqing and Shanghai. CEO Loo sees strong demand for premium healthcare services by the Chinese and believes RMG will do well once it manages to ramp up its services over the next few years. If things work out, RMG is considering expanding into other Chinese cities.
Risks for the company include stronger competition from other private players and regulatory restrictions placed on RMG’s China operations.
3. Haw Par Corporation Limited
Haw Par Corporation Limited (SGX: H02) is a conglomerate with four main divisions: healthcare, leisure, property, and investments. The healthcare division deals with ointments and pain patches manufactured under the Tiger Balm brand and makes up the main driver of growth for the group. The group operates an aquarium attraction in Thailand for the leisure segment, while it holds stakes in properties in Singapore and Malaysia for the property division.
Haw Par has been growing Tiger Balm’s top and bottom lines over the years as the brand is marketed globally. With the trend of staying healthy and exercising regularly, sports injuries are also more common, leading to higher demand for Tiger Balm’s pain patches and soothing ointments.
Risks for the company include a spike in raw material prices leading to gross margin erosion, as well as the inability of the group to introduce effective new products to generate demand.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Top Glove Corporation Berhad, Raffles Medical Group Ltd, and Haw Par Corporation Limited. Motley Fool Singapore contributor Royston Yang owns shares in Raffles Medical Group Ltd.
Motley Fool Singapore 2019