Brokers' take: SAC Capital initiates 'hold' on Livingstone Health with S$0.168 target price

SAC Capital has initiated coverage on Catalist-listed healthcare group Livingstone Health Holdings (LHH) with a "hold" call and a target price of S$0.168 on expected reopening recovery of the medical industry and improved employment.

The target price assumes a risk-free rate of 1.8 per cent and cost of equity of 14 per cent. The "hold" call reflects the estimated FY2023 price-to-earnings ratio of 10.7 times on a 19 per cent net earnings growth.

In a research report on Friday (Feb 4), analyst Peggy Mak said she expects the reopening of borders and relaxation of quarantine requirements to encourage more medical tourists to return. With a bigger budget directed to medical wellness, local patients would also direct their spending towards healthcare services, she added.

"Continued improvements in the unemployment rate, wage gains and an ageing population could eclipse the decline in Singapore's population to drive increased healthcare spending," Mak said.

The brokerage estimates that foreign and local patient visits fell about 30 per cent in the last 2 years due to border restrictions and the fear of getting infected, but Mak believes "the worst is probably behind".

The analyst highlighted that LHH enjoys synergies as it is a diversified healthcare group. These include patient referrals within the group, limited sales cannibalisation, no reliance on a single discipline or doctor, and operating leverage in support staff and procurement of supplies.

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However, regional competition and the shrinking population pose "long-term headwinds", the brokerage stated. With the pandemic, regional healthcare services improved and patients were forced to seek treatment in their home countries, allowing healthcare players to cultivate patient acceptance and loyalty, Mak said.

The potential for doctors to leave LHH is also a main risk for the healthcare group as patients tend to follow their doctors wherever they go, the analyst added. For LHH, she said its challenge is to retain good doctors and increase its profits, while ensuring that patients receive necessary medical care. Mak projects that the sector will recruit new doctors and tilt towards mergers and acquisitions to build scale.

Shares of Livingstone Health were trading at S$0.154, up 4.8 per cent or S$0.007, as at 2.41 pm on Friday.