Brokers' take: DBS expects Econ Healthcare to gain from ageing population; initiates with 'buy'

PRIVATE nursing home operator Econ Healthcare (Asia) EHG will likely gain from ageing population trends, DBS Group Research said in a research note on Monday.

The brokerage team initiated coverage on the company with a "buy" call and target price of S$0.40, noting that the stock is trading at an undemanding valuation of 22 times the brokerage's estimates for FY2022 earnings, which is below its peers' median of 23.9 times.

Shares of Econ Healthcare were down 0.5 Singapore cent or 1.6 per cent at 31 cents, as at 10.51am on Tuesday.

DBS said the private nursing home industry is forecasted to grow at a four-year compound annual growth rate of 13.6 per cent in Singapore, 11.5 per cent in Malaysia and 16.6 per cent in China from 2020 to 2024. This would benefit Econ Healthcare, which operates nursing homes in Singapore and Malaysia and has a presence in China.

The brokerage team added that there is potential unmet demand for private nursing home beds, since there has largely been an unchanged supply of available private nursing beds relative to the increasing ageing population.

Singapore is likely the core market for Econ Healthcare due to a ramp-up in bed capacity and strong occupancy rates, DBS said.

The company will be operating two new nursing homes under the Ministry of Health's Build-Own-Lease (BOL) scheme, where the centres are expected to be operational by the second half of 2022 and 2025.

From winning its first BOL tender in 2011, Econ Healthcare remains the only private operator under the scheme, where the government tenders operating rights of nursing homes it builds and owns to other operators.

The company's revenue and operating profit also was largely resilient during the pandemic, and occupancy rates reached a historical high of 95 per cent in 2021, DBS noted.

Malaysia is also a fast-growing market for Econ Healthcare, with its centre in Puchong that commenced operations in Dec 2020, and with its freehold site in Cheras, Kuala Lumpur, which it can develop into a senior care hub that will provide longer term growth opportunities.

Additionally, the company should see further upside from growth opportunities in China, through its Chongqing centre that commenced operations in H1 2021, as well as its Changshou Centre and Chengdu Centre, which should drive earnings by FY2023.

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