5 Medical Companies with Return on Tangible Equity Above 10%

There are quite a handful of integrated and specialized medical companies that are listed on the Singapore Exchange.
With the gradual economic recovery and border reopening, demand for general medical services and medical tourism services are expected to increase. Their asset-light business models mean that they can leverage on the rebound fairly quickly.

In this article, we will be looking at these 5 medical companies and their Return on Tangible Equity (“ROTE” in short), mainly:

• Alliance Healthcare Group Limited (SGX: MIJ)
• Asian Healthcare Specialists Limited (SGX: 1J3)
• Singapore O&G Limited (SGX: 1D8)
• HC Surgical Specialists Limited (SGX: 1B1)
• ISEC Healthcare Limited (SGX: 40T)

1) Alliance Healthcare Group Limited (SGX: MIJ)

Founded in 1994, Alliance Healthcare Group Limited (“Alliance Healthcare”) is an integrated healthcare group that leverages the use of technology to provide a broad suite of healthcare services primarily in Singapore. The Group designs and provides enterprise-level healthcare solutions to meet the demands of organisations and individual patients for reliable and cost-effective healthcare services.
The Group’s business comprises five key segments:

• Managed Healthcare solutions
• GP clinics services
• Specialist care services
• Pharmaceutical services
• Mobile and digital health services

Alliance Healthcare’s revenue has been on an uptrend for the past 3 financial years. For FY2019, its revenue came in at just S$36.51 million and has since jumped to S$46.41 million in FY2021. The rise can be attributed to the increase in sales generated by the pharmaceutical services segment and mobile and digital health services business segment.

On the other hand, Alliance Healthcare’s profit after tax has been fluctuating despite the rising revenue. After the initial jump to SS$2.59 million in FY2020, it faced a year-on-year decline of 22.50% in FY2021, mainly due to higher cost of revenue and employee benefits expense.

After a strong surge in Alliance Healthcare’s Return on Tangible Equity (“ROTE”) for FY2020, its figure for FY2021 shrank by 7.26 percentage points to 11.43%, on back of reduced earnings in the same period.

2) Asian Healthcare Specialists Limited (SGX: 1J3)

Asian Healthcare Specialists Limited (“Asian Healthcare”) is a multi-disciplinary medical services group that engages in the provision of a wide range of general and specialized healthcare services, comprising of anaesthesia, dermatology, family medicine, gastroenterology, orthopaedics, ophthalmology, otorhinolaryngology, urology and rehabilitative services.

Currently, the Group has 15 medical specialists and doctors operating at 14 clinics across Singapore.

Similar to Alliance Healthcare, Asian Healthcare’s revenue has been on an uptrend for the past 3 financial years. For FY2020, its revenue grew by 38.75% year-on-year to S$16.93 million. This can be seen from the expansion into other new medical services, such as dermatology, family medicine, gastroenterology, ophthalmology and urology services.

In line with the higher revenue growth, Asian Healthcare’s profit after tax jumped by close to 40% year-on-year to S$4.01 million.

Despite the increase in profit after tax, Asian Healthcare’s ROTE for FY2020 declined marginally by 0.30 percentage points to 21.39%. This was due to a higher amount of shareholder’s equity, as a result of issuance of new shares.

3) Singapore O&G Limited (SGX: 1D8)

Established in 2011, Singapore O&G Limited (“SOG”) is a leading healthcare service provider dedicated towards delivering premier medical services on women's and children's health.

SOG provides obstetrics and gynaecology (“O&G”) services such as pre-pregnancy counselling, delivery, pregnancy and post-delivery care. Since then, the Group has expanded its spectrum of healthcare services to include paediatrics, gynaecological cancer, cancer-related general surgery for breast, thyroid and colon (colorectal), as well as skin and aesthetics treatments.

For FY2020, SOG’s revenue remained flat at S$39.88 million mainly due to the confluence of higher revenue from its O&G and Cancer-related segment being offset by the revenue decline in its Paediatrics segment.

Despite that, SOG’s profit after tax was back in the black for FY2020, with a profit of S$9.49 million. The turnaround was attributed to the absence of impairment of goodwill and lower other operating expenses.

Apart from the negligible ROTE figure for FY2019 due to the losses incurred, SOG’s ROTE figure for FY2020 stood at 30.80%, significantly higher than the figure registered in FY2018, mainly due to the slight improvement in earnings and lower shareholder’s equity.

4) HC Surgical Specialists Limited (SGX: 1B1)

HC Surgical Specialists Limited (“HC Surgical”) is a medical services group primarily engaged in the provision of endoscopic procedures, including gastroscopies and colonoscopies and general surgery services with a focus on colorectal procedures across a network of 18 clinics located throughout Singapore.

After an initial slide in revenue for FY2020, HC Surgical’s revenue has rebounded by more 39% year-on-year to S$23.35 million. The stronger revenue growth can be seen from the increase in the number of patients after the circuit breaker measures were lifted on 2nd June 2020.

Meanwhile, HC Surgical’s profit after tax surged by close to 120% year-on-year to S$8.85 million. The outperformance was attributed to:

• Fair value gain on financial assets
• Absence of allowance of impairment loss on goodwill
• Negative lease expense as a result of rental reliefs

After a steep decline in FY2020’s ROTE, the figure shot up drastically from 28.63% in FY2020 to 158.73% in FY2021 underpinned by the strong surge in profit after tax and a lower shareholder’s equity.

5) ISEC Healthcare Limited (SGX: 40T)

ISEC Healthcare Limited (“ISEC Healthcare”) is a medical eye care service provider, with surgical centers in Kuala Lumpur, Penang and Malacca, Malaysia.
It offers a range of specialist eye care services in the fields of cataract and refractive surgery (including laser-assisted in situ keratomileusis (LASIK)), vitreoretinal diseases, corneal and external eye diseases, glaucoma, uveitis, oculoplastics, facial cosmetics and aesthetics surgery, adult strabismus and pediatric ophthalmology.

For FY2020, ISEC Healthcare’s revenue declined by 15.27% year-on-year to S$36.32 million. The decline was mainly due to the outbreak of COVID-19 in the financial year, which resulted in an adverse impact on its business activities in both Malaysia and Singapore.

In particular, the reduction in its Singapore’s segment was also contributed by the entry restrictions imposed on foreign patients seeking healthcare treatment in Singapore.

Correspondingly, ISEC Healthcare’s profit after tax dropped by 38.60% year-on-year to S$4.45 million.

ISEC Healthcare’s ROTE has been on a declining trend since FY2018. This trend can be attributed to the decline in profit after tax and the increase in shareholder’s equity across the years. For FY2020, its ROTE figure stood at 17.57%, a drop of 9.80 percentage points.

Conclusion

To conclude, these medical companies mentioned above have remained profitable despite the adverse impact from the COVID-19 pandemic.

Given the gradual reopening of economy and border, these medical companies could expect a moderate improvement in its topline and bottom line in the near to medium term.

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