Isec's profit fall may portend earnings weakness across healthcare sector

Singapore

ISEC Healthcare on Tuesday posted a 37 per cent drop in net profit to S$1.39 million for its first quarter ended March 31, down from S$2.22 million in the previous corresponding period.

The Catalist-listed medical eyecare services provider attributed the decline to nationwide movement restrictions implemented by the Malaysia and Singapore governments to curb the spread of Covid-19.

Its performance could be a harbinger of weakness for the locally listed healthcare players, including Raffles Medical Group, IHH Healthcare and TalkMed Group.

Isec, which derives its revenue mostly from Malaysia, reported a 7 per cent fall in Q1 revenue to S$9.27 million, from S$9.94 million a year ago. Its cost of sales, however, increased by 4 per cent to S$5.31 million on higher staff-related expenses. This included the hiring of four specialist doctors during the quarter.

The company's ophthalmologists have accepted an 80 per cent pay cut for April, Isec said, compared to a 50 per cent reduction previously. It will continue to review salaries in the coming months.

Healthcare companies have been hit badly by the novel coronavirus crisis. Typically considered recession-proof, many are now dealing with excess capacity.

In a global survey of 5,500 consumers in 11 markets by Jefferies Research on the effect of Covid-19 movement restrictions on people's lives, three in 10 respondents said they knew someone who had to delay a medical procedure due to the pandemic. Jefferies Research interviewed consumers from the US, China, Japan, UK, France, Italy, Germany, Spain, Hong Kong, India and Australia for the report.

As part of Singapore's circuit breaker, all non-essential medical services will be deferred until June 1. These include surgeries for stable cataract or stable joint arthropathies, health screenings, psychological treatments and physiotherapy.

CGS-CIMB analyst Ngoh Yi Sin said these rules have translated into excess bed capacity for healthcare providers as local patients defer appointments.

Global travel restrictions have also meant lower foreign patient volumes, which contribute about 25 and 30 per cent of Raffles Medical and IHH's hospital operations, respectively.

CGS-CIMB cut its numbers for both Raffles Medical and IHH in its March 24 research note. Ms Ngoh said a similar impact could be expected for Thomson Medical Group.

However, primary care services, such as general practitioner clinics - which both Raffles Medical and IHH own - could still be resilient.

The extent of the earnings decline for healthcare players this year "will hinge on how fast the situation normalises," Ms Ngoh said. Should that happen soon, there could be "higher pent-up demand" in the second half of the year.

She added that companies could mitigate revenue loss by taking up border screening contracts, diagnostic testing, or the transfer of patients from public to private hospitals to offload the growing healthcare burden.

In an April 2 research report on IHH, Maybank IB Research analyst Lee Yen Ling slashed estimates on the stock's earnings per share from 2020 to 2022 due to lower patient volumes expected in Singapore, Malaysia, and Turkey, where the group operates.

She added that travel bans and lockdowns imposed in the group's key markets meant the current quarter could be the worst for the year. "Margins could decline as (IHH) loses its high-margin foreign patients," Ms Lee said.

RHB Research analyst Jarick Seet added that the standstill in global travel caused by the pandemic would hit local healthcare companies hard, given Singapore's position as a regional healthcare hub.

"Medical tourism forms a huge part of the healthcare sector in Singapore and with that portion gone, we would likely see a drop in both revenue and margins for local healthcare players," Mr Seet said.

In an April 1 report, Mr Seet cautioned that Catalist-listed healthcare provider TalkMed Group could take a hit because foreign medical tourism makes up "the bulk of TalkMed's portfolio". The company is reliant on foreign patients, especially those from Indonesia, for business.

Isec shares traded flat at S$0.30 at Wednesday's close, as did TalkMed shares at S$0.42.

IHH shares fell S$0.03 or 1.8 per cent to S$1.67, while Raffles Medical shares fell S$0.02 or 2.3 per cent to S$0.84.