en cs asean healthcare sector close to escape velocity
29 April 2014
Asia Pacific
Equity Research
ASEAN Healthcare Sector
Connections Series
Close to escape velocity
Figure 1: Health expenditure as a percentage of GDP—OECD since 1960 vs
ASEAN since 1995
9.0
OECD
UK
AU
JP
SG
MY
ID
TH
PH
8.0
7.0
6.0
5.0
4.0
The Credit Suisse Connections Series
leverages our exceptional breadth of
macro and micro research to deliver
incisive cross-sector and cross-border
thematic insights for our clients.
Research Analysts
Anand Swaminathan
65 6212 3012
anand.swaminathan@credit-suisse.com
Thaniya Kevalee
66 2 614 6219
thaniya.kevalee@credit-suisse.com
ASEAN
3.0
2.0
1.0
0.0
'60
'65
'70
'75
'80
'85
'90
Source: OECD, World bank, Credit Suisse research
■ ASEAN healthcare nearing a tipping point à la OECD in the 1960s:
Malaysia/Indonesia to lead growth. The perception of the ASEAN hospital
sector's attractiveness is mainly driven by its level of underpenetration. We
argue that the more critical underlying macroeconomic drivers (primarily per
capita income, ageing and favourable regulations) are now aligned to push
healthcare expenditure into a sustainably higher growth trajectory, with
Malaysia and Indonesia likely to be growth leaders. ASEAN now resembles
OECD in the 1960s-70s—on the verge of a multi-year secular bull cycle.
■ Medium-term valuations: ASEAN hospitals attractively priced (and
offer further optionality). Given the varied stages of growth and profitability,
near-term valuations are misleading. Our analysis focusses on assessing
the potential medium-term earnings potential of ASEAN peers, to look at a
more sustainable earnings stream, compare valuations in the global context
and pick potential stock winners. ASEAN hospitals look attractively valued
on our base and bull cases (and many of them offer significant optionality
from other potential future opportunities).
■ IHH, Siloam and Bumrungrad are standout growth stories. Our top picks
in the ASEAN hospital space are IHH Healthcare (Upgrade to
OUTPERFORM)—hitting the sweet spot in geographies and customer
segments plus optionality in India/China; Siloam (re-instate coverage with
OUTPERFORM)—stands out in terms of being the dominant player in the
most attractive market in the region; and Bumrungrad—premium player in
ASEAN medical tourism, expected to maintain its leadership position.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do
business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS
BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
29 April 2014
Focus charts
Figure 2: ASEAN—country attractiveness to private healthcare spending growth over the medium term
Population growth
Aging
Income growth
Penetration
Regulations
Medical tourism
Overall relative
attractiveness
Neutral
Attractive
Neutral
Unattractive
Neutral
Attractive
Medium to high
Malaysia
Attractive
Neutral
Neutral
Neutral
Attractive
Attractive
Very high
Indonesia
Attractive
Neutral
Attractive
Attractive
Attractive
Neutral
Very high
Thailand
Neutral
Attractive
Neutral
Neutral
Neutral
Attractive
Medium to high
Attractive
Neutral
Attractive
Neutral
Neutral
Neutral
Medium to high
Singapore
Philippines
Note: This heatmap depicts the attractiveness of various drivers to growth in private healthcare spending over the medium term (five years).
Source: Credit Suisse research
Figure 3: Per capita GDP versus health expenditure as a percentage of GDP
14.0
4.0
Health expenditure as
% of GDP
Health expenditure as % of GDP
3.8
12.0
US'90
ASEAN'10
3.6
10.0
3.4
ASEAN'05
3.2
US'80
8.0
3.0
US'70
6.0
AU'90
JP'80
AU'80
UK'80
4.0
2.8
UK'90
JP'90
2.4
2.0
Per capita GDP (US$)
0.0
0
ASEAN'00
2.6
AU'70
JP'70UK'70
5,000
10,000
15,000
20,000
25,000
30,000
Figure 4: Percentage of aged population (65 years+)
US
JP
ID
18.0
16.0
UK
SG
TH
2.2
Per capita GDP (US$)
2.0
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Figure 5: EBITDA under CS scenarios (2013 = 100)
AU
MY
PH
1000
2013
900
'18 Bear
'18 Base
888
'18 Bull
800
14.0
700
12.0
549
600
10.0
500
8.0
361
400
6.0
300
ASEAN
1995-2010
4.0
200
2.0
253
166
100
340
228
199
170
100
262
232
201
100
273
202
160
100
241
196
151
100
KPJ
RFMD
100
100
0.0
0
'60
'65
'70
'75
'80
'85
'90
Figure 6: 2013-18E EBITDA CAGR vs 2015E EV/EBITDA
20
IHH
BGH
BH
SILO
Figure 7: 2018E bull EV/EBITDA (x)
16
2015E EV/EBITDA (x)
SILO
13.4
14
19
18
12
BGH
17
11.0
RFMD
11.0
9.7
9.5
10
8.1
8.0
8
16
6.1
KPJ
15
6
IHH
14
6.6
4
BH
2
13
2013-18E CS base case EBITDA CAGR (%)
12
0
0
10
20
30
40
50
IHH
BGH
BH
KPJ
RFMD
SILO
Aus
US
Global
Source: OECD, World bank, Company data, Credit Suisse research
ASEAN Healthcare Sector
2
29 April 2014
Close to escape velocity
While the macroeconomic fundamentals are undeniable, the biggest challenge for
investors in the ASEAN hospitals sector is balancing the apparently stretched valuations
with the future growth potential of individual stocks, both on an absolute and relative basis.
To avoid being blindsided by near-term valuations, our analysis focusses on potential
medium term (2018-19E) scenarios to normalise earnings and pick potential stock winners.
ASEAN healthcare expenditure growth nearing a tipping point
Healthcare expenditure as a percentage of GDP in the OECD countries is almost three
times the levels seen in ASEAN. Even with the rapid pace of increase in wealth levels in
ASEAN over the past 15 years, the pace of growth in healthcare expenditure continues to
lag more developed countries. ASEAN (in most cases excluding Singapore) healthcare
expenditure growth is now close to achieving escape velocity and should see acceleration
over the medium term (five to ten years) with various underlying drivers now falling in
place. In some sense, ASEAN healthcare spending growth is now similar to the US/UK in
the 1960s-70s—on the verge of a secular bull cycle. We find Malaysia and Indonesia as
the most attractive markets for private healthcare players in ASEAN over the medium term.
Our heatmap shows
Indonesia and Malaysia to
lead health expenditure
growth in ASEAN
Potential medium-term scenarios for 2018-19E earnings
Given the hospital groups in Asia are in various stages of growth, we need to look beyond
the near term in gauging relative valuations and implied growth potential. Based on their
current expansion plans, we believe ASEAN hospital groups will attain a steady-state
earnings base by 2018. Although their networks and earnings base might continue to
expand inorganically beyond 2018, organic (same hospital) growth will become a primary
driver. We look at various medium-term (2018-19) scenarios for ASEAN hospitals. Siloam,
IHH and Bumrungrad clearly offer the most attractive growth stories in ASEAN healthcare.
While the base case growth scenarios (15-40% CAGR) themselves are attractive, the
earnings upside under our bull case scenarios (18-55% CAGR) are significantly higher.
Siloam, IHH and
Bumrungrad offer the most
attractive growth stories
Picking the leaders: IHH and Siloam stand out
When we use our medium-term earnings scenarios, valuations of ASEAN hospitals appear
reasonable both in absolute terms and in the context of global mature peers. If our bull
case scenarios play out, some of them look like outright bargains. While strong underlying
demand growth should lift all stocks, we shortlist three winners:
We upgrade IHH to
OUTPERFORM and reinstate coverage on Siloam
with OUTPERFORM
IHH Healthcare (Upgrade to OUTPERFORM): IHH has probably hit the sweet spot in
terms of targeting both the right geographies and customer segments, along with a lot of
optionality (in India and China). We are now increasingly convinced of its execution
capability. IHH, in our view, offers the best risk-reward profile in the region—among the
best growth profile, boosted by better execution track record and lower margin risk due to
positioning in the premium segment. We upgrade rating to OUTPERFORM from Neutral.
Siloam (Reinstate coverage with OUTPERFORM): Siloam stands out in terms of being
the dominant player in the most attractive market in the region. While we appreciate that
the market needs more convincing in terms of execution capability, we believe Siloam
could prove to be one of the best growth stories over the medium term. We reinstate
coverage on the stock (it is just out of restriction) with an OUTPERFORM rating and a TP
of Rp13,000 and we also significantly increase our FY14/15 EPS estimates by 36%/19%.
Bumrungrad: One of the best managed hospitals in ASEAN with the highest ROE of
27.5% (2013). BH has maintained its leadership in Thailand's premium healthcare market
over the years, and with its second campus expansion, the leadership gap is likely to
widen. While the stock has already outperformed over the past few months, its valuation
relative to sector peers remains attractive.
ASEAN Healthcare Sector
3
29 April 2014
Sector valuation snapshot
Figure 8: Global healthcare valuation summary
P/E (x)
Mkt Cap
25-Apr-14
EV/EBITDA (x)
PEG (x)
P/B (x)
ROE (%) Yield (%)
NJA Healthcare
Bberg
US$ mn
13A
14E
15E
15E
13A
14E
15E
14E
14E
14E
Apollo Hospitals
APHS IN
2,052
37.5
31.5
25.7
1.3
18.7
16.2
13.5
3.9
12.6
0.8
Fortis Healthcare
FORH IN
775
n.m.
n.m.
42.1
n.m.
22.9
28.0
19.0
1.1
0.2
0.0
Siloam Hospitals
SILO JK
1,085
227.8
126.1
78.8
2.0
40.3
28.6
18.9
7.4
5.9
0.0
Bangkok Dusit
BGH TB
6,681
35.8
32.0
26.0
2.0
22.6
20.5
17.4
4.8
15.2
1.6
Bumrungrad Hospital
BH TB
2,227
29.0
26.8
21.3
1.0
19.6
18.3
15.2
6.6
24.5
2.1
Raffles Medical
RFMD SP
1,512
29.2
26.0
23.7
2.1
19.9
17.6
16.0
3.6
13.6
1.5
KPJ Healthcare
KPJ MK
1,021
29.5
28.5
25.0
n.m.
19.2
17.6
15.1
2.8
8.8
2.5
IHH Healthcare
IHH MK
9,688
43.9
37.8
30.4
0.5
21.1
17.6
14.7
1.7
4.5
0.5
61.8
44.1
34.1
1.5
23.0
20.5
16.2
4.0
10.6
1.1
NJA Healthcare Average
P/E (x)
Mkt Cap
EV/EBITDA (x)
PEG (x)
P/B (x)
ROE (%) Yield (%)
Global Healthcare
Bberg
US$ mn
13A
14E
15E
15E
13A
14E
15E
14E
14E
14E
Primary Health Care
PRY AU
2,208
15.2
13.9
12.6
1.1
8.8
8.4
7.8
0.9
6.2
4.5
Ramsay Healthcare
RHC AU
8,477
30.4
26.0
22.9
1.4
14.0
13.8
12.4
5.3
21.6
2.0
Life Healthcare Group
LHC SJ
4,031
23.4
20.6
18.0
1.2
n.a.
11.8
10.7
8.9
39.0
3.8
Mediclinic International
MDC SJ
5,641
21.2
17.9
15.7
0.7
11.9
12.3
11.2
2.7
16.5
1.9
Netcare
NTC SJ
3,559
18.0
15.3
13.5
0.6
9.3
8.2
7.3
3.2
22.5
3.1
Community Health System
CYH US
4,601
16.6
13.6
10.1
2.9
n.a.
6.7
6.0
1.1
9.6
0.0
HCA Holdings
HCA US
23,714
15.7
14.4
12.4
2.5
n.a.
7.4
6.7
n.m.
n.m.
0.0
Lifepoint Hospitals
LPNT US
2,530
20.7
21.4
18.4
n.m.
7.9
7.3
6.1
1.1
5.8
0.0
Tenet Healthcare
THC US
4,500
24.7
35.4
18.8
1.5
11.1
7.6
5.8
5.0
13.0
0.0
Universal Health Services
UHS US
8,186
18.2
16.5
14.8
1.4
8.8
7.9
7.0
2.2
13.8
0.2
Global ex-NJA Healthcare Average
20.4
19.5
15.7
1.5
10.3
9.1
8.1
3.4
16.5
1.6
Global Healthcare Average
37.5
29.6
23.9
1.5
17.1
14.2
11.7
3.7
13.7
1.4
Source: The BLOOMBERG PROFESSIONAL service
TM
, Credit Suisse estimates
Figure 9: P/E (2015E)
90
78.8
80
70
60
50
42.1
40
30
26.0
25.7
21.3
23.7
25.0
30.4
22.9
20
12.6
18.0
15.7
13.5
MDC
NTC
10.1
12.4
CYH
HCA
18.4
18.8
LPNT
THC
14.8
10
0
APHS
FORH
SILO
BGH
India
BH
RFMD
KPJ
IHH
ASEAN
PRY
RHC
LHC
Australia
UHS
United States
S. Africa
Figure 10: EV/EBITDA (2015E)
25
19.0
20
15
18.9
17.4
15.2
13.5
16.0
15.1
14.7
12.4
10
10.7
11.2
7.8
7.3
6.0
6.7
6.1
5.8
CYH
HCA
LPNT
THC
7.0
5
0
APHS
FORH
SILO
India
BGH
BH
ASEAN
RFMD
KPJ
IHH
PRY
Australia
Source for both figures: The BLOOMBERG PROFESSIONAL service
ASEAN Healthcare Sector
RHC
LHC
MDC
S. Africa
NTC
UHS
United States
TM
4
29 April 2014
ASEAN healthcare expenditure
growth nearing a tipping point
Healthcare expenditure as a percentage of GDP in the OECD countries is almost three
times the levels seen in ASEAN. Even with the rapid pace of increase in wealth levels in
ASEAN over the past 15 years, the pace of growth in healthcare expenditure continues to
lag more developed countries, despite the low base and underpenetration levels. Based
on our analysis, the pace of increase in healthcare expenditure reaches escape velocity
when certain underlying drivers and economic conditions are in place.
Figure 11: Total healthcare spending as a percentage of GDP
US
14.0
UK
AU
JP
SG
MY
ID
TH
PH
12.0
10.0
Healthcare expenditure as a
percentage of GDP in the
OECD countries is almost
three times that of ASEAN
ASEAN healthcare spending
is now similar to the US/UK
in the 1960s-70s—on the
verge of a secular bull cycle,
with many drivers falling in
place
8.0
6.0
4.0
ASEAN
1995-2010
2.0
0.0
'60
'65
'70
'75
'80
'85
'90
Source: OECD, World bank, Credit Suisse research
In this section, we argue that ASEAN (in most cases excluding Singapore) healthcare
expenditure growth is now close to achieving escape velocity and should see acceleration
over the medium term (five to ten years) with various underlying drivers now falling in
place. In some sense, ASEAN healthcare spending growth is now on the verge of a
secular bull cycle, similar to the US/UK in the 1960s-70s.
Gauging the drivers of private healthcare spending in
ASEAN and lessons from OECD
In order to estimate the potential upside to healthcare spending in the region and identify
relative outperformers, we chart an ASEAN healthcare heatmap with a set of key
healthcare spending growth drivers:
■
Population growth and ageing (key determinant of healthcare expenditure growth
with a non-linear relationship).
■
Income growth/per capita GDP (key determinant of healthcare expenditure growth
with a non-linear relationship).
■
Penetration levels: the demand supply gap (drives potential increase in private
healthcare investments and profitability).
■
Government healthcare spending/regulations (sets up the regulatory backdrop for
private healthcare spending and growth).
■
Insurance coverage levels (drives healthcare expenditure growth and profitability).
ASEAN Healthcare Sector
5
29 April 2014
■
Medical tourism (as a booster to healthcare investment and spending).
Demographics: Slower population growth to be more than offset by ageing
When looking at demographics in the context of healthcare spending, while the longerterm potential for growth is driven by overall population growth, the near-to-medium term
trends are more correlated to the age of the population. While life expectancy continues to
increase across the board, healthcare-related spending tends to increase with ageing,
especially in the 65+ years age group.
Figure 12: Population (mn)
350
2010
2020
Figure 13: Population growth CAGR (%)
3.0
2050
293
300
2010-20
2020-50
2.5
263
240
250
2000-10
2.6
1.9
2.0
1.9
1.6
1.5
200
1.5
155
150
1.0
1.2
1.0
0.9
1.2
0.9
0.9
110
93
100
0.5
69 72 71
28 33
50
43
0.4
0.3
0.4
0.0
0.0
5.1 5.6 6.1
0
-0.5
SG
MY
ID
TH
PH
SG
MY
ID
TH
PH
Source: UN Population database
Singapore: While Singapore has the smallest population base among ASEAN, it is
probably ageing the fastest and the pace of ageing is likely to accelerate over the
foreseeable future. By 2020, the median age of Singaporeans is likely to be the highest in
ASEAN at 43 years, and about 15% of the population is likely to be above 65 years of age.
Malaysia: Population growth during this decade is likely to be the highest at 1.5% CAGR,
but Malaysia's population is likely to remain mostly young in 2020, with a median age of 29
years and only 7% of the population above 65 years of age.
Indonesia: The population is likely to both grow (0.9% CAGR) and age steadily through
this decade with the median age around 31 years by 2020.
Thailand: After Singapore, Thailand's population is likely to age the most by 2020. The
median age is likely to increase to 38 years by 2020 with roughly 12% of the population
above 65 years of age.
The Philippines: With strong population growth in ASEAN for the next few decades,
Filipinos are likely to remain the youngest in ASEAN for the foreseeable future. By 2020,
the median age is likely to remain low at 25 years, with only 4.9% above 65 years of age.
ASEAN Healthcare Sector
6
29 April 2014
Figure 14: Median age (x)
45
40
35
Figure 15: Percentage of population above 65 years
43
2000
2010
18
2020
38
38
16
34
34
31
29
30
14
26
2010
2020
12.3
30
28
12
25
24
24
25
2000
15.3
20
10
22
20
9.0
7.4
8
15
8.9
7.1
6
10
4
5
2
0
7.0
6.9
5.6
4.8
4.9
4.6
3.8
3.2
3.6
0
SG
MY
ID
TH
PH
SG
MY
ID
TH
PH
Source: UN Population database
By 2020, the aged population (above 65 years of age) in ASEAN could hit 36 mn from 25
mn in 2010. Indonesia will most likely be the major contributor to this increase. By 2050, it
could hit 100 mn with Indonesia home to more than half the aged in the region.
Interestingly, given better population growth in the Philippines, the number of aged could
reach the same level as Thailand, despite a much younger population.
Figure 16: Population above 65 years of age (mn)
120
2000
2010
2020
2050
99
100
ASEAN's aged population
could hit almost 100 mn by
2050, with Indonesia home
to more than half the aged
in the region
80
56
60
36
40
25
20
0.3 0.5 0.9 1.9
1 1 2
7
10
13
18
18
4 6
9
17
18
5
2 3
0
SG
MY
ID
TH
PH
Total
Source: UN Population database
Income growth/per capita GDP: Excluding Singapore, others should continue to
grow steadily from a low base
Income growth and per capita GDP are probably the most important factors driving private
healthcare expenditure spend, especially for economies crossing over certain per capita
GDP thresholds. Empirically, as per capita GDP increases and the middle class has higher
disposable income with basic needs more than satisfied, both the absolute and the share
of income spent on healthcare needs tend to show a non-linear increase. Except probably
Singapore, ASEAN countries are expected to see their overall income levels continue to
grow faster and potentially spend more on healthcare needs.
ASEAN Healthcare Sector
As the middle class gets
wealthier, both the absolute
and the share of healthcare
spend tend to show a nonlinear increase
7
29 April 2014
Figure 17: Per capita GDP (PPP US$)
70,000
1980
1990
2000
2010
2018F
60,000
50,000
45,639
40,000
30,000
20,000
12,745
8,659
10,000
2,374
634
4,740
2,986
796 2,155
1,521
0
SG
MY
ID
TH
PH
Source: World Bank
Singapore: An outlier in the ASEAN context with income levels already at developed
country levels. However, slower potential growth in income levels could be offset by a
rapidly ageing population and potential growth in influx of medical tourists.
Malaysia—Malaysia's per capita GDP level is probably the closest to threshold levels
where healthcare spend as a percentage of income sees a non-linear jump.
Indonesia: Has seen exceptional per capita income growth over the past decade and is
likely to again see the best growth over the near-to-medium term. With both absolute and
relative healthcare penetration levels being the lowest for Indonesia, it holds the most
potential to see a sustained acceleration in healthcare expenditure growth in ASEAN.
Thailand: While the country's per capita income level is almost half of Malaysia's,
Thailand's per capita GDP growth level is expected to be similar to that of Malaysia.
The Philippines: An interesting case where income levels are at par with Indonesia, but
healthcare penetration is already above ASEAN averages. Philippines' potential mediumterm income growth levels are expected to be only similar to Malaysia/Thailand.
Figure 18: Per capita GDP (base 1990 = 100)
800
700
1990
2000
Figure 19: Per capita GDP; CAGR (%)
2010
2018F
25
SG
MY
ID
TH
PH
1990 = 100
19.1
20
600
14.9
500
15
12.3
400
13.2
10.6
10
300
7.4
5.2
200
10.2
9.2
9.0
8.0
6.3
5.7
7.6
6.6
6.1
6.9
6.2
4.4
5
3.1
100
0
0
SG
MY
ID
TH
PH
'1980-90
'1990-00
'2000-10
2010-18F
Source: World Bank
ASEAN Healthcare Sector
8
29 April 2014
As the chart below illustrates, Indonesia provides an ideal combination of a big population
base, low penetration levels and faster expected income growth over the medium term. At
the other end of the spectrum, Singapore has the least population and is expected to see
lowest income growth over the medium term.
Figure 20: ASEAN—per capita GDP (US$ PPP) vs 2010-18F CAGR (%)
12.0
Indonesia provides an ideal
combination for a sustained
acceleration in healthcare
expenditure growth
Per capita GDP growth 2010-18F (%)
ID
10.0
8.0
PH
6.0
MY
TH
4.0
SG
2.0
Per capita GDP (US$)
0.0
0
10,000
20,000
30,000
40,000
50,000
60,000
Note: Size of the bubble indicates the size of the population.
Source: World Bank, Credit Suisse research
Penetration levels: Demand-supply gap
Clearly the underlying supply of healthcare services in ASEAN tends to lag the West by a
wide margin due to a multitude of factors. With the expected increase in healthcare
demand driven by an ageing population and growing income levels, supply shortage is
likely to require huge investments, either by the government or private sector, over the
medium to long term. This will likely ensure steady growth of the private healthcare
sector's revenue pool and its pricing power will improve until supply catches up with
demand.
Figure 21: Total healthcare expenditure as a percentage of GDP
20.0
'95
'00
Latest
ASEAN penetration levels
are only half of OECD levels
and one-third of the US
17.9
18.0
16.0
13.6
14.0
12.0
ASEAN average 3.8%
8.0
6.8
6.0
10.1
8.6
6.8
5.2
4.6
4.0
2.0
9.3
9.3
10.0
2.9
3.6
3.5
4.1
2.0
1.5
2.7
3.4
4.1
3.5
4.0 3.9
0.0
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
EU
Source: World Bank
ASEAN Healthcare Sector
9
29 April 2014
Singapore: Interestingly, while Singapore's income levels are close to those of developed
markets, healthcare expenditure as a percentage of GDP is only slightly higher than
ASEAN's, and lags the developed markets' by a wide margin. This is partly reflective of the
better efficiency of the Singaporean healthcare system and better preventive healthcare
services. Looking at it in the context of a rapidly ageing population, there appears to be a
lot of potential to increase its healthcare expenditure levels.
Malaysia: Health expenditure as a percentage of GDP is lower than the ASEAN average
and is higher than only Indonesia.
Indonesia: Indonesia healthcare expenditure penetration is probably among the least in
the world and is clearly the least penetrated among the most populated countries.
Thailand/Philippines: Ex-Singapore, Thailand and Philippines have relatively better
healthcare expenditure penetration levels in ASEAN.
Looking at the supply side of the equation will help us better gauge the potential for near to
medium term growth in healthcare revenue pool, future requisite investments in the
healthcare sector, and more importantly, pricing power of private healthcare players. The
intent and capacity of governments/regulators would be the final determinant of the
potential for private healthcare players to grow their revenue pool and increase profitability
levels.
Supply of doctors: The ASEAN average of one physician per 1,000 people is less than
half of that of OECD. Within ASEAN, Thailand and Indonesia have the least number of
doctors per capita. The higher per capita availability of doctors in Singapore might be
partly to serve the medical tourism industry.
Figure 22: Number of physicians per 1,000 people
3.0
'95
'00
2.8
Latest
2.5
2.5
2.2
ASEAN average 1.0
1.9
2.0
2.2
1.9
1.8
1.5
1.5
1.4
1.3
1.2
0.9
1.0
0.7
0.6
0.6
0.4
0.5
0.2
0.4
0.2
0.1
0.0
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
Source: WHO
Supply of hospital infrastructure: Not surprisingly, ASEAN hospital infrastructure
penetration is much inferior in the global context. Indonesia and Philippines stand out with
hospital beds per capita at roughly one-third the ASEAN average.
ASEAN Healthcare Sector
10
29 April 2014
Figure 23: Number of hospital beds per 10,000 people
180
'95
'00
Latest
154
160
134
140
120
100
ASEAN average 17
80
60
42
33
40
41
31
30
22
20
18
11
30
21
14
6
5
9
6
5
4
0
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
Source: WHO
In most cases, demand and supply tend to move in tandem unless there is regulatory
involvement like in China. In other words, most economies tend to build healthcare supply
in line with the increase in demand, albeit with a lag. While in Indonesia, both demand and
supply have a lot of catching up to do, Malaysia/Thailand can potentially meet more
incremental demand with the current supply.
Figure 24: Total health expenditure as a percentage of GDP vs hospital beds per capita
Hospital beds per capita
45
CH
40
35
SG
30
US
UK
25
TH
20
MY
15
10
IN
ID
5
PH
Health exp as % GDP
0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Source: WHO, World Bank, Credit Suisse research
Government healthcare spending: How to fund it?
Healthcare is a double-edged sword for governments, especially the ones with fiscal
deficits. While increasing public expenditure on healthcare could win more votes, it could
also prove to be a big strain on government budgets given the upfront capital investment
required and steady commitment to capex on an ongoing basis.
Lack of government fiscal
legroom provides a sweet
spot for private healthcare
players
The easier option for governments is to encourage private investments in the sector. While
eventually governments tend to restrict the profitability of private healthcare businesses,
the sector's profitability has to be high enough to attract private capital investment in the
early stages of the cycle. As a result, we expect regulations in the healthcare space to
ASEAN Healthcare Sector
11
29 April 2014
remain conducive to private healthcare players over the next ten to twenty years—a sweet
spot for them in terms of both growing rapidly and improving profitability.
Figure 25: Public as a percentage of total healthcare
Figure 26: Government hospital beds as a percentage of
expenditure
total beds
90
2000
Latest
80
ASEAN average 44
90%
83
80
77
75
70
80%
70%
56
60
60%
46
46
50
40
34
31
50%
40%
33
31
30
30%
20
20%
10
10%
0
0%
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
EU
SG
MY
TH
ID
PH
Source: World Bank, Government websites, Credit Suisse research
Singapore: Singapore's government is probably in the best position among ASEAN
countries to increase public spending on healthcare. The Singapore government's primary
focus over the medium term remains to make healthcare more accessible to its ageing
population. While we expect a sustained increase in public expenditure on healthcare, we
do not foresee crowding out of private healthcare spending. Private healthcare players
could continue to see growth as well as increased pricing power, driven by increasing
wealth levels, private insurance penetration, a sizeable wealthy migrant population, and
most importantly, Singapore's positioning as a medical tourism hub.
Malaysia: Malaysia probably has the least legroom among ASEAN countries to see a big
increase in public healthcare expenditure, with the government fiscal deficit the highest
among ASEAN at 3-4% of GDP. With the government's healthcare-related commitments
already high—70-80% of the total beds in government hospitals and the government
spending 46% of the total budget on healthcare—we expect its share of total healthcare
expenditure to remain at best flat or close to current levels. Nonetheless, we expect a
relatively favourable investment climate for healthcare players, not least to help achieve
the government's aim of promoting Malaysia as a medical tourism hub. However, we do
believe the government could do more by relaxing some of the land zoning laws and
restrictions on medical bill sizes to further accelerate private investment.
Indonesia: We rank Indonesia as the most conducive to local private healthcare players,
but the most restrictive for foreign investments (given restrictions on foreign investments
and rules restricting foreign doctors). Given the underpenetration level and expected
growth in healthcare needs, this provides a great opportunity for local players to expand
aggressively, but the private healthcare space remains extremely fragmented. The
government's ambitious plans to achieve universal health insurance coverage could
further expand the target market for private players.
Thailand: Interestingly, Thailand has the highest government spending (75% of total) in
healthcare and is at par with developed countries. Given the fiscal constraints and overall
economic uncertainties, we should probably expect government spending to normalise
from such high levels, enabling private players to grow.
ASEAN Healthcare Sector
12
29 April 2014
Figure 27: Government fiscal balance (percentage of GDP)
2.0
2013
2014F
2015F
1.1
1.0
0.3
0.0
-0.3
-1.0
-1.5
-2.0
-2.0
-2.5
-3.0
-2.2 -2.3
-2.0
-2.0
-2.2
-2.5
-3.0
-3.5
-4.0
-3.9
-5.0
SG
MY
TH
ID
PH
Source: Credit Suisse Economics research
ASEAN Healthcare Sector
13
29 April 2014
Figure 28: ASEAN—key government initiatives/focus on the healthcare sector
Country
Comments
Healthcare 2020 Masterplan: Released in 2012, contains various measures to enhance the accessibility, affordability and
Singapore
quality of healthcare to be implemented
Highlights of the masterplan include the addition of 1,900 acute beds and 1,800 community beds through to 2020, with
the latest target raised to 4,100
Healthcare to be the main driver of higher social spending over the next 10 to 15 years
Funding will be balanced between tax-funded subsidies, collective risk-pooling, individual co-payments and safety nets for
the needy, with a focus also on managing healthcare cost inflation
Healthy Living Masterplan to encourage a healthy lifestyle through healthier eating and initiatives to encourage exercise,
such as the "One Million Kg Challenge"
Key budget 2014 initiatives:
o
Government's direct spending on healthcare to increase to S$7.5 bn in FY14, from S$4 bn in FY11, with the
government's share of national healthcare expenditure increasing from 33% in FY12 to 40% or more
o
Enhancement of Medishield to Medishield Life, to provide universal coverage
o
Lifetime healthcare support for the Pioneer Generation, including additional subsidies for primary care and
specialist outpatient services
o
Medisave top-up for older Singaporeans, and increase in CPF contribution rates for older workers
o
Malaysia
National Health Strategic Plan (2010-2014) prioritised healthcare access and delivery
Shift of governmental focus towards a community-centric healthcare system since 2004
Objective for the government is to attain universal (100%) public health insurance in the next 3-5 years, for a population of
about 263 mn
As of 2012, approximately 60% of the total population was insured under various public and private insurance schemes
Effective 1 Jan 2014, a universal social security system has been implemented, based on Law No. 24/2011 regarding
Social Security Administrators, which builds on Law No. 40/2004 regarding the National Social Security System
The new system is intended to cover all employees and residents (including foreign residents) under a single healthcare
system by 2019 and a single employment benefit system by 2029
BPJS Health Care (BPJS Kesehatan) will administer healthcare benefits, and BPJS Employment (BPJS
Ketenagakarjaan) will administer employment benefits, which include old-age, pension, workplace accident and death
benefits
The four state-owned insurance companies, PT Askes, PT Jamsostek, PT Taspen, and PT Asabri—will be transformed
into non-profit public companies under the presidential jurisdiction for more stringent operational control and the adoption
of public health insurance will be made mandatory
Early adopter of Universal Healthcare, with implementation since 2002
In 2006, then Public Health Minister, Mongkol Na Songkhla, abolished the 30 baht co-payment and made the Universal
Healthcare Scheme free
Thailand has also recently reaffirmed its commitment to Universal Healthcare in the "Bangkok Statement on Universal
Health Coverage" in January 2012
Under the 11th National Economic and Social Development Plan (2012-2016), it was noted that public health expenditure
will increase at the expense of other investments, with targeted improvements in public health services, redistribution of
health personnel and the development of a national health database
Indonesia
Thailand
Increase in Tobacco Excise Duties by 10% to $388 per kg
10th Malaysia Plan (2011-15) aims to chart Malaysia's development into a high income nation, envisioned in Vision 2020
"Transforming Delivery of the Healthcare System" as part of the plan involves restructuring the national health system,
with three key initiatives:
o
Streamlining regulatory and service provision roles: MOH will focus mainly on governance and enforcement
o
Reviewing legislations and regulations: A review of existing legislation and the introduction of new regulations to
emphasise enforcement of accreditation, credentialing and privileging
o
Reviewing financing options:. A review of financing options also includes the introduction of cost sharing options
Other key thrusts include increasing capacity of healthcare infrastructure across primary, secondary and tertiary care
services, shifting towards wellness and disease prevention and increasing the doctor:population ratio from 1:1,380 in
2005 to 1:597 in 2015, and the nurse-population from 1:592 to 1:200
Budget 2014 also saw the abolishment of the sugar subsidy of 34 sen
Source: Government websites, Credit Suisse estimates
ASEAN Healthcare Sector
14
29 April 2014
Insurance coverage levels: Increasing penetration levels could boost health
expenditure
Except probably Singapore, the life insurance density and penetration levels in ASEAN
continue to remain very low. While data on medical insurance plans are sparse, it
continues to be low. However, medical insurance penetration, partly enabled by
government initiatives and increasing income levels, is increasing from very low levels.
This could potentially provide an additional boost to healthcare spending in the economy,
albeit exerting some influence on the pricing power of hospital operators.
Figure 29: Insurance density—life insurance premiums
Figure 30: Insurance penetration—life insurance as a
per capita (US$)
percentage of GDP
4,000
2000
14%
2012
2000
3,562
3,500
3,258
3,000
2012
12%
10%
8.4%
8.3%
2,500
8%
2,000
1,809
1,808
6%
1,500
4.2%
1,000
4.2%
2.5%
500
290
2%
125
33
16
107
3.7%
3.4%
4%
2.4%
1.1%
0.8%
ID
PH
53
0%
0
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
SG
MY
TH
CH
IN
JP
US
UK
Source: Swiss Re, Credit Suisse research
WHO and UN consider universal coverage as key priorities
The World Health Organisation (WHO) in its report, Health systems financing: The path to
universal health coverage, has detailed its plan of action towards achieving universal
health coverage among countries globally. While specific budgets are still being developed
and discussed internally, the general objective is to support countries to modify their health
financing systems in order to move more rapidly towards universal coverage. Through
specific actions and policy assistance at the global and country levels, it is intended that by
end-2015, there would be increased coverage with needed health services, a reduction in
the proportion of out-of-pocket payments and a reduction in the proportion of the
population facing financial impoverishment as a result of out-of-pocket payments.
The UN General Assembly too has addressed the issue of universal coverage with a
resolution on affordable universal healthcare adopted in December 2012. While
acknowledging that that the choice of a health financing system should be made within the
ambit of each country, the resolution recognises that improving social protection towards
universal coverage helps support a more sustainable, inclusive and equitable society. In
addition, the resolution also encourages the transition of health systems towards universal
coverage while continuing to invest in and strengthening the health-delivery systems of
each country.
ASEAN Healthcare Sector
15
29 April 2014
Figure 31: ASEAN—universal healthcare schemes and implementation
Country
Singapore
Malaysia
Indonesia
Thailand
Universal healthcare schemes and implementation
The government encourages individuals to subscribe for approved health insurance policies by allowing them to pay the
premium from savings in the Medisave account
In addition, employers are encouraged by tax incentives to implement employer-sponsored health insurance schemes
"3M" framework for healthcare financing: Medisave, a compulsory individual medical savings account scheme;
Medifund, a medical endowment fund set up for needy patients; and Medishield, a low cost catastrophic medical
insurance scheme
Individual responsibility for one’s healthcare is promoted through the features of deductibles and co-payment in
MediShield
ElderShield, a severe disability insurance, is also available for subscription by Singaporeans to risk-pool against the
financial risks of suffering a severe disability
Many middle and higher income Singaporeans have also supplemented their basic coverage with integrated private
insurance policies (“Integrated Shield plans”) for treatment in the private sector
Significant enhancements to Medishield Life were recently unveiled, with amongst others, universal lifetime coverage,
removal of a lifetime claim limit, higher payouts, with the government to take on most of the costs of universal coverage
Traditionally, those who seek treatment in a private healthcare facility pay OOP for the medical fees
The increasing availability of medical insurance packages in Malaysia has decreased the reliance on OOP spending,
with 27 registered medical insurance providers in Malaysia as at 2012
Public healthcare is heavily subsidised by the government, with the government subsidised universal healthcare plan
providing coverage for public healthcare facilities
However, anyone who is not employed by a local Malaysian company is not eligible for public insurance and cannot take
advantage of its coverage
A National Health Financing Scheme is still at the draft stage but is expected to be funded through contributions from
employees, employers and the federal government (1 Care)
Effective 1 Jan 2014, a universal social security system "Jaminan Kesehatan Nasional" has been implemented, with
BPJS Health Care (BPJS Kesehatan) administering healthcare benefits
The government will fully cover health costs for those unable to pay for a minimal level of care, while those able to pay
for insurance will have fees based on whether they are fully employed and the level of coverage
"Single Payer" approach: All health care coverage under Askes (for civil servants), Jamsostek (for the private sector)
and Asabri (for the police and army) will be transferred to BPJS Health Care starting 1January 2014. By 2019, the
system is intended to cover the entire population of Indonesia
Employees already covered by company-provided health insurance plans that have contracted out of Jamsostek
healthcare benefits can retain that coverage until 2019
Contributions for funding healthcare will be split between employers and employees
Universal healthcare coverage since 2002
Previously, the Medical Welfare Scheme (WHS) provided tax-financed coverage to the poor and vulnerable groups,
while the Voluntary Health Card Scheme (HCS) was a public voluntary insurance programme for households who did
not qualify for the WHS
In 2002, Thailand reformed its public health financing system and introduced the National Health Security Act, extending
the scope of coverage to 18 mn people who were uninsured and to a further 29 mn who were previously covered by
less-comprehensive schemes
Thai citizens holding a Universal Coverage Health card issued by the National Health Security Office enjoy
comprehensive healthcare covering outpatient care, hospitalisation, prescription drugs and even more expensive
medical services, such as radiotherapy and surgery etc.
Source: Credit Suisse research
Medical tourism: ASEAN countries striving to find their niche
ASEAN is shaping up to be an increasingly dynamic hub for global medical tourism
offering world-class healthcare infrastructure, professionals and service at a fraction of the
potential cost in more developed countries. Rather than competing with each other for
market share, the countries in ASEAN are strategically positioning themselves to target
different segments of demand for medical tourism.
Singapore: With its superior infrastructure and premium quality healthcare specialists,
Singapore strives to maintain its cutting edge of medical services and offerings. Its
competitive advantage is mostly driven by its cost disadvantages—with a higher cost
structure, Singapore is least capable of competing on costs in the ASEAN context. Some
of the specialised areas in which Singapore has a relative advantage include complex
procedures such as organ transplant, cardiovascular surgery, reconstructive surgery and
hematopoietic stem cell transplantation. For example, Mount Elizabeth Hospital noted that
it performs the largest number of cardiac surgeries and neurosurgeries in the private
sector in the region. Pioneering procedures and adopting new technologies are also a
ASEAN Healthcare Sector
Singapore: Positioning itself
as the leader in premium
healthcare
16
29 April 2014
niche offering by Singapore hospitals, such as the use of robot-assisted surgical systems
and keyhole surgeries, thus promising better patient turnout and recovery rates.
Malaysia: It is fast emerging as the dark horse in the ASEAN medical tourism space, not
helped by a supportive government focussed on positioning Malaysia as a global medical
tourism hub. Malaysia's medical tourism potential is bolstered by its focussed investment
in improving healthcare infrastructure, ample supply of healthcare professionals and
geographical positioning/connectivity to its key target markets of Indonesia and the Middle
East. Over the medium term, its cost advantage and improving quality of medical
professionals could pose a serious threat to Singapore's medical tourism positioning.
Malaysia: A genuine
competitive threat to
Singapore and Thailand
Indonesia: Continues to be a net supplier of medical tourism dollars to neighbouring
ASEAN countries due to the perceived quality of medical specialists in the country. While
in theory, Indonesia's increasing tourist volumes could be potentially a rich source for
medical tourism (especially at tourist destinations such as Bali), it might be years before
Indonesia poses a threat to its neighbours.
Thailand: Only BH and BGH are active players in medical tourism in Thailand, with the
key advantage being relatively cheap pricing and a very strong general tourism sector (this
is important given that some medical tourists combine their health check-up with their
annual vacation). With growing economic integration among ASEAN countries, Thailand
should see strong growth.
Thailand: Riding on the back
of a strong tourism sector
Back to the future: ASEAN healthcare sector close to
a tipping point à la OECD in the 1970s
To summarise and conclude our thesis on ASEAN healthcare spending, we look at the
commonalities in terms of macroeconomic drivers between ASEAN and OECD countries.
Per capita GDP and ageing population are probably the most observable and clear drivers
across countries and time periods. In both cases, ASEAN now resembles OECD in the
early 1970s which was the starting point of the secular growth story of OECD healthcare
spending.
ASEAN per capita GDP: Following a similar pattern as OECD countries
As the following charts illustrate, absolute level of per capita GDP shows a good
correlation with the share of healthcare expenditure across countries through decades.
Figure 32: Per capita GDP vs health expenditure as a percentage of GDP
14.0
4.0
Health expenditure as
% of GDP
Health expenditure as % of GDP
3.8
12.0
US'90
ASEAN'10
3.6
10.0
3.4
ASEAN'05
3.2
US'80
8.0
3.0
US'70
6.0
JP'80AU'80
UK'80
4.0
AU'90
2.8
JP'90
2.6
AU'70
JP'70UK'70
2.4
2.0
Per capita GDP (US$)
0.0
0
5,000
ASEAN'00
UK'90
10,000
15,000
20,000
25,000
30,000
2.2
2.0
1,000
Per capita GDP (US$)
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Source: World bank, Credit Suisse research
Growth in per capita GDP in ASEAN in 2010 quite resembles that of OECD countries
when they were bunched together in the early 1970s. Interestingly, there is a bit of
ASEAN Healthcare Sector
17
29 April 2014
divergence in the pace of increase in healthcare expenditure driven by factors such as
ageing, lifestyle, regulation etc., though the overall direction of change is quite similar.
Figure 33: Per capital GDP (US$, PPP)
US
3000
UK
AU
JP
MY
ID
TH
PH
2500
ASEAN in 2010 quite
resembles OECD countries'
per capita GDP growth
when they were bunched
together in the early 1970s
2000
1500
1000
500
ASEAN
1995-2010
0
'60
'65
'70
'75
'80
'85
'90
Source: World Bank, Credit Suisse research
As illustrated in the table below, healthcare spending decisions and their importance have
a non-linear relationship with per capita GDP. The first real jump in allocations to
healthcare happens when per capita GDP moves above the US$5,000 level, and then
further improves to becoming one of the most important spending categories once per
capital GDP moves beyond the US$10,000 level. Notably, Indonesia, Thailand and
Philippines are on the verge of moving to the US$5,000-plus per capita GDP bucket, while
Malaysia could move comfortably into the US$10,000 bucket over the next few years.
Figure 34: Consumer product categories (typical growth stages)—future growth potential
at various levels of GDP per capita
Below $2,000
$2,000-$5,000
High
Cereals
Two Wheelers
Medium
Stimulants
Apparel
M eat
Low
Beverages
Appliances
Health Care
Education
Consumer Credit
Cars
PC/Laptops
Beauty Products
Tourism/Travel
M eat
Apparel
Stimulants
Beverages
Appliances
Cars
Two Wheelers
Cereals
PC/Laptops
Beauty Products
Health Care
Consumer Credit
Tourism/Travel
Indonesia, Thailand and
Philippines are on the verge
of moving to the US$5,000plus per capita GDP bucket,
while Malaysia could
comfortably move into the
US$10,000 bucket
Education
$5,000-$10,000
Beverages
Cars
Appliances
PC/Laptops
Beauty Products
Education
M eat
Apparel
Health Care
Consumer Credit
Tourism/Travel
Stimulants
Cereals
Two Wheelers
$10,000-$20,000
Education
Healthcare
Consumer Credit
Beauty Products
Tourism/Travel
Cars
PC/Laptops
Beverages
Cereals
Two Wheelers
Appliances
M eat
Apparel
Stimulants
Source: World Bank, Credit Suisse estimates
ASEAN Healthcare Sector
18
29 April 2014
Ageing population: ASEAN's silver age just beginning
While research across time periods shows that ageing in itself is not a big driver of
healthcare spending, combined with an increase in wealth levels it could result in higher
healthcare spending allocations. To some extent, there is a correlation between higher per
capita GDP and slowing birth rates, resulting in an ageing population.
Figure 35: Percentage of aged population (65 years+) vs health expenditure as a percentage of GDP
18.0
6.0
Health expenditure as
% of GDP
16.0
14.0
12.0
US'70
JP'90
AU'90
4.5
AU'80
JP'80
ASEAN'00
AU'70
JP'70
6.0
ASEAN'05
US'90
US'80
8.0
ASEAN'10
5.0
UK'70
10.0
5.5
UK'90
UK'80
Health expenditure as % of GDP
4.0
4.0
3.5
2.0
% of aged population
% of aged population
0.0
0
5,000
10,000
15,000
20,000
25,000
3.0
1,000
30,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Source: World Bank, Credit Suisse research
Historically, there appears to be a good correlation between overall ageing and healthcare
spending allocation. ASEAN countries with a couple of decades of steady economic
growth do not have populations as young as before, and will probably continue to age over
the next few decades. Again, in this respect, ASEAN countries quite resemble the OECD
countries in the early 1970s.
Figure 36: Percentage of aged population (65 years+)
US
18.0
UK
AU
JP
SG
MY
ID
TH
PH
16.0
14.0
12.0
10.0
8.0
6.0
ASEAN
1995-2010
4.0
2.0
0.0
'60
'65
'70
'75
'80
'85
'90
Source: World Bank, Credit Suisse research
ASEAN Healthcare Sector
19
29 April 2014
ASEAN heatmap: Picking the medium-term winners in
ASEAN healthcare
To summarise our analysis, we present a heatmap looking at the relative attractiveness of
various ASEAN countries f
Asia Pacific
Equity Research
ASEAN Healthcare Sector
Connections Series
Close to escape velocity
Figure 1: Health expenditure as a percentage of GDP—OECD since 1960 vs
ASEAN since 1995
9.0
OECD
UK
AU
JP
SG
MY
ID
TH
PH
8.0
7.0
6.0
5.0
4.0
The Credit Suisse Connections Series
leverages our exceptional breadth of
macro and micro research to deliver
incisive cross-sector and cross-border
thematic insights for our clients.
Research Analysts
Anand Swaminathan
65 6212 3012
anand.swaminathan@credit-suisse.com
Thaniya Kevalee
66 2 614 6219
thaniya.kevalee@credit-suisse.com
ASEAN
3.0
2.0
1.0
0.0
'60
'65
'70
'75
'80
'85
'90
Source: OECD, World bank, Credit Suisse research
■ ASEAN healthcare nearing a tipping point à la OECD in the 1960s:
Malaysia/Indonesia to lead growth. The perception of the ASEAN hospital
sector's attractiveness is mainly driven by its level of underpenetration. We
argue that the more critical underlying macroeconomic drivers (primarily per
capita income, ageing and favourable regulations) are now aligned to push
healthcare expenditure into a sustainably higher growth trajectory, with
Malaysia and Indonesia likely to be growth leaders. ASEAN now resembles
OECD in the 1960s-70s—on the verge of a multi-year secular bull cycle.
■ Medium-term valuations: ASEAN hospitals attractively priced (and
offer further optionality). Given the varied stages of growth and profitability,
near-term valuations are misleading. Our analysis focusses on assessing
the potential medium-term earnings potential of ASEAN peers, to look at a
more sustainable earnings stream, compare valuations in the global context
and pick potential stock winners. ASEAN hospitals look attractively valued
on our base and bull cases (and many of them offer significant optionality
from other potential future opportunities).
■ IHH, Siloam and Bumrungrad are standout growth stories. Our top picks
in the ASEAN hospital space are IHH Healthcare (Upgrade to
OUTPERFORM)—hitting the sweet spot in geographies and customer
segments plus optionality in India/China; Siloam (re-instate coverage with
OUTPERFORM)—stands out in terms of being the dominant player in the
most attractive market in the region; and Bumrungrad—premium player in
ASEAN medical tourism, expected to maintain its leadership position.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do
business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS
BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
29 April 2014
Focus charts
Figure 2: ASEAN—country attractiveness to private healthcare spending growth over the medium term
Population growth
Aging
Income growth
Penetration
Regulations
Medical tourism
Overall relative
attractiveness
Neutral
Attractive
Neutral
Unattractive
Neutral
Attractive
Medium to high
Malaysia
Attractive
Neutral
Neutral
Neutral
Attractive
Attractive
Very high
Indonesia
Attractive
Neutral
Attractive
Attractive
Attractive
Neutral
Very high
Thailand
Neutral
Attractive
Neutral
Neutral
Neutral
Attractive
Medium to high
Attractive
Neutral
Attractive
Neutral
Neutral
Neutral
Medium to high
Singapore
Philippines
Note: This heatmap depicts the attractiveness of various drivers to growth in private healthcare spending over the medium term (five years).
Source: Credit Suisse research
Figure 3: Per capita GDP versus health expenditure as a percentage of GDP
14.0
4.0
Health expenditure as
% of GDP
Health expenditure as % of GDP
3.8
12.0
US'90
ASEAN'10
3.6
10.0
3.4
ASEAN'05
3.2
US'80
8.0
3.0
US'70
6.0
AU'90
JP'80
AU'80
UK'80
4.0
2.8
UK'90
JP'90
2.4
2.0
Per capita GDP (US$)
0.0
0
ASEAN'00
2.6
AU'70
JP'70UK'70
5,000
10,000
15,000
20,000
25,000
30,000
Figure 4: Percentage of aged population (65 years+)
US
JP
ID
18.0
16.0
UK
SG
TH
2.2
Per capita GDP (US$)
2.0
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Figure 5: EBITDA under CS scenarios (2013 = 100)
AU
MY
PH
1000
2013
900
'18 Bear
'18 Base
888
'18 Bull
800
14.0
700
12.0
549
600
10.0
500
8.0
361
400
6.0
300
ASEAN
1995-2010
4.0
200
2.0
253
166
100
340
228
199
170
100
262
232
201
100
273
202
160
100
241
196
151
100
KPJ
RFMD
100
100
0.0
0
'60
'65
'70
'75
'80
'85
'90
Figure 6: 2013-18E EBITDA CAGR vs 2015E EV/EBITDA
20
IHH
BGH
BH
SILO
Figure 7: 2018E bull EV/EBITDA (x)
16
2015E EV/EBITDA (x)
SILO
13.4
14
19
18
12
BGH
17
11.0
RFMD
11.0
9.7
9.5
10
8.1
8.0
8
16
6.1
KPJ
15
6
IHH
14
6.6
4
BH
2
13
2013-18E CS base case EBITDA CAGR (%)
12
0
0
10
20
30
40
50
IHH
BGH
BH
KPJ
RFMD
SILO
Aus
US
Global
Source: OECD, World bank, Company data, Credit Suisse research
ASEAN Healthcare Sector
2
29 April 2014
Close to escape velocity
While the macroeconomic fundamentals are undeniable, the biggest challenge for
investors in the ASEAN hospitals sector is balancing the apparently stretched valuations
with the future growth potential of individual stocks, both on an absolute and relative basis.
To avoid being blindsided by near-term valuations, our analysis focusses on potential
medium term (2018-19E) scenarios to normalise earnings and pick potential stock winners.
ASEAN healthcare expenditure growth nearing a tipping point
Healthcare expenditure as a percentage of GDP in the OECD countries is almost three
times the levels seen in ASEAN. Even with the rapid pace of increase in wealth levels in
ASEAN over the past 15 years, the pace of growth in healthcare expenditure continues to
lag more developed countries. ASEAN (in most cases excluding Singapore) healthcare
expenditure growth is now close to achieving escape velocity and should see acceleration
over the medium term (five to ten years) with various underlying drivers now falling in
place. In some sense, ASEAN healthcare spending growth is now similar to the US/UK in
the 1960s-70s—on the verge of a secular bull cycle. We find Malaysia and Indonesia as
the most attractive markets for private healthcare players in ASEAN over the medium term.
Our heatmap shows
Indonesia and Malaysia to
lead health expenditure
growth in ASEAN
Potential medium-term scenarios for 2018-19E earnings
Given the hospital groups in Asia are in various stages of growth, we need to look beyond
the near term in gauging relative valuations and implied growth potential. Based on their
current expansion plans, we believe ASEAN hospital groups will attain a steady-state
earnings base by 2018. Although their networks and earnings base might continue to
expand inorganically beyond 2018, organic (same hospital) growth will become a primary
driver. We look at various medium-term (2018-19) scenarios for ASEAN hospitals. Siloam,
IHH and Bumrungrad clearly offer the most attractive growth stories in ASEAN healthcare.
While the base case growth scenarios (15-40% CAGR) themselves are attractive, the
earnings upside under our bull case scenarios (18-55% CAGR) are significantly higher.
Siloam, IHH and
Bumrungrad offer the most
attractive growth stories
Picking the leaders: IHH and Siloam stand out
When we use our medium-term earnings scenarios, valuations of ASEAN hospitals appear
reasonable both in absolute terms and in the context of global mature peers. If our bull
case scenarios play out, some of them look like outright bargains. While strong underlying
demand growth should lift all stocks, we shortlist three winners:
We upgrade IHH to
OUTPERFORM and reinstate coverage on Siloam
with OUTPERFORM
IHH Healthcare (Upgrade to OUTPERFORM): IHH has probably hit the sweet spot in
terms of targeting both the right geographies and customer segments, along with a lot of
optionality (in India and China). We are now increasingly convinced of its execution
capability. IHH, in our view, offers the best risk-reward profile in the region—among the
best growth profile, boosted by better execution track record and lower margin risk due to
positioning in the premium segment. We upgrade rating to OUTPERFORM from Neutral.
Siloam (Reinstate coverage with OUTPERFORM): Siloam stands out in terms of being
the dominant player in the most attractive market in the region. While we appreciate that
the market needs more convincing in terms of execution capability, we believe Siloam
could prove to be one of the best growth stories over the medium term. We reinstate
coverage on the stock (it is just out of restriction) with an OUTPERFORM rating and a TP
of Rp13,000 and we also significantly increase our FY14/15 EPS estimates by 36%/19%.
Bumrungrad: One of the best managed hospitals in ASEAN with the highest ROE of
27.5% (2013). BH has maintained its leadership in Thailand's premium healthcare market
over the years, and with its second campus expansion, the leadership gap is likely to
widen. While the stock has already outperformed over the past few months, its valuation
relative to sector peers remains attractive.
ASEAN Healthcare Sector
3
29 April 2014
Sector valuation snapshot
Figure 8: Global healthcare valuation summary
P/E (x)
Mkt Cap
25-Apr-14
EV/EBITDA (x)
PEG (x)
P/B (x)
ROE (%) Yield (%)
NJA Healthcare
Bberg
US$ mn
13A
14E
15E
15E
13A
14E
15E
14E
14E
14E
Apollo Hospitals
APHS IN
2,052
37.5
31.5
25.7
1.3
18.7
16.2
13.5
3.9
12.6
0.8
Fortis Healthcare
FORH IN
775
n.m.
n.m.
42.1
n.m.
22.9
28.0
19.0
1.1
0.2
0.0
Siloam Hospitals
SILO JK
1,085
227.8
126.1
78.8
2.0
40.3
28.6
18.9
7.4
5.9
0.0
Bangkok Dusit
BGH TB
6,681
35.8
32.0
26.0
2.0
22.6
20.5
17.4
4.8
15.2
1.6
Bumrungrad Hospital
BH TB
2,227
29.0
26.8
21.3
1.0
19.6
18.3
15.2
6.6
24.5
2.1
Raffles Medical
RFMD SP
1,512
29.2
26.0
23.7
2.1
19.9
17.6
16.0
3.6
13.6
1.5
KPJ Healthcare
KPJ MK
1,021
29.5
28.5
25.0
n.m.
19.2
17.6
15.1
2.8
8.8
2.5
IHH Healthcare
IHH MK
9,688
43.9
37.8
30.4
0.5
21.1
17.6
14.7
1.7
4.5
0.5
61.8
44.1
34.1
1.5
23.0
20.5
16.2
4.0
10.6
1.1
NJA Healthcare Average
P/E (x)
Mkt Cap
EV/EBITDA (x)
PEG (x)
P/B (x)
ROE (%) Yield (%)
Global Healthcare
Bberg
US$ mn
13A
14E
15E
15E
13A
14E
15E
14E
14E
14E
Primary Health Care
PRY AU
2,208
15.2
13.9
12.6
1.1
8.8
8.4
7.8
0.9
6.2
4.5
Ramsay Healthcare
RHC AU
8,477
30.4
26.0
22.9
1.4
14.0
13.8
12.4
5.3
21.6
2.0
Life Healthcare Group
LHC SJ
4,031
23.4
20.6
18.0
1.2
n.a.
11.8
10.7
8.9
39.0
3.8
Mediclinic International
MDC SJ
5,641
21.2
17.9
15.7
0.7
11.9
12.3
11.2
2.7
16.5
1.9
Netcare
NTC SJ
3,559
18.0
15.3
13.5
0.6
9.3
8.2
7.3
3.2
22.5
3.1
Community Health System
CYH US
4,601
16.6
13.6
10.1
2.9
n.a.
6.7
6.0
1.1
9.6
0.0
HCA Holdings
HCA US
23,714
15.7
14.4
12.4
2.5
n.a.
7.4
6.7
n.m.
n.m.
0.0
Lifepoint Hospitals
LPNT US
2,530
20.7
21.4
18.4
n.m.
7.9
7.3
6.1
1.1
5.8
0.0
Tenet Healthcare
THC US
4,500
24.7
35.4
18.8
1.5
11.1
7.6
5.8
5.0
13.0
0.0
Universal Health Services
UHS US
8,186
18.2
16.5
14.8
1.4
8.8
7.9
7.0
2.2
13.8
0.2
Global ex-NJA Healthcare Average
20.4
19.5
15.7
1.5
10.3
9.1
8.1
3.4
16.5
1.6
Global Healthcare Average
37.5
29.6
23.9
1.5
17.1
14.2
11.7
3.7
13.7
1.4
Source: The BLOOMBERG PROFESSIONAL service
TM
, Credit Suisse estimates
Figure 9: P/E (2015E)
90
78.8
80
70
60
50
42.1
40
30
26.0
25.7
21.3
23.7
25.0
30.4
22.9
20
12.6
18.0
15.7
13.5
MDC
NTC
10.1
12.4
CYH
HCA
18.4
18.8
LPNT
THC
14.8
10
0
APHS
FORH
SILO
BGH
India
BH
RFMD
KPJ
IHH
ASEAN
PRY
RHC
LHC
Australia
UHS
United States
S. Africa
Figure 10: EV/EBITDA (2015E)
25
19.0
20
15
18.9
17.4
15.2
13.5
16.0
15.1
14.7
12.4
10
10.7
11.2
7.8
7.3
6.0
6.7
6.1
5.8
CYH
HCA
LPNT
THC
7.0
5
0
APHS
FORH
SILO
India
BGH
BH
ASEAN
RFMD
KPJ
IHH
PRY
Australia
Source for both figures: The BLOOMBERG PROFESSIONAL service
ASEAN Healthcare Sector
RHC
LHC
MDC
S. Africa
NTC
UHS
United States
TM
4
29 April 2014
ASEAN healthcare expenditure
growth nearing a tipping point
Healthcare expenditure as a percentage of GDP in the OECD countries is almost three
times the levels seen in ASEAN. Even with the rapid pace of increase in wealth levels in
ASEAN over the past 15 years, the pace of growth in healthcare expenditure continues to
lag more developed countries, despite the low base and underpenetration levels. Based
on our analysis, the pace of increase in healthcare expenditure reaches escape velocity
when certain underlying drivers and economic conditions are in place.
Figure 11: Total healthcare spending as a percentage of GDP
US
14.0
UK
AU
JP
SG
MY
ID
TH
PH
12.0
10.0
Healthcare expenditure as a
percentage of GDP in the
OECD countries is almost
three times that of ASEAN
ASEAN healthcare spending
is now similar to the US/UK
in the 1960s-70s—on the
verge of a secular bull cycle,
with many drivers falling in
place
8.0
6.0
4.0
ASEAN
1995-2010
2.0
0.0
'60
'65
'70
'75
'80
'85
'90
Source: OECD, World bank, Credit Suisse research
In this section, we argue that ASEAN (in most cases excluding Singapore) healthcare
expenditure growth is now close to achieving escape velocity and should see acceleration
over the medium term (five to ten years) with various underlying drivers now falling in
place. In some sense, ASEAN healthcare spending growth is now on the verge of a
secular bull cycle, similar to the US/UK in the 1960s-70s.
Gauging the drivers of private healthcare spending in
ASEAN and lessons from OECD
In order to estimate the potential upside to healthcare spending in the region and identify
relative outperformers, we chart an ASEAN healthcare heatmap with a set of key
healthcare spending growth drivers:
■
Population growth and ageing (key determinant of healthcare expenditure growth
with a non-linear relationship).
■
Income growth/per capita GDP (key determinant of healthcare expenditure growth
with a non-linear relationship).
■
Penetration levels: the demand supply gap (drives potential increase in private
healthcare investments and profitability).
■
Government healthcare spending/regulations (sets up the regulatory backdrop for
private healthcare spending and growth).
■
Insurance coverage levels (drives healthcare expenditure growth and profitability).
ASEAN Healthcare Sector
5
29 April 2014
■
Medical tourism (as a booster to healthcare investment and spending).
Demographics: Slower population growth to be more than offset by ageing
When looking at demographics in the context of healthcare spending, while the longerterm potential for growth is driven by overall population growth, the near-to-medium term
trends are more correlated to the age of the population. While life expectancy continues to
increase across the board, healthcare-related spending tends to increase with ageing,
especially in the 65+ years age group.
Figure 12: Population (mn)
350
2010
2020
Figure 13: Population growth CAGR (%)
3.0
2050
293
300
2010-20
2020-50
2.5
263
240
250
2000-10
2.6
1.9
2.0
1.9
1.6
1.5
200
1.5
155
150
1.0
1.2
1.0
0.9
1.2
0.9
0.9
110
93
100
0.5
69 72 71
28 33
50
43
0.4
0.3
0.4
0.0
0.0
5.1 5.6 6.1
0
-0.5
SG
MY
ID
TH
PH
SG
MY
ID
TH
PH
Source: UN Population database
Singapore: While Singapore has the smallest population base among ASEAN, it is
probably ageing the fastest and the pace of ageing is likely to accelerate over the
foreseeable future. By 2020, the median age of Singaporeans is likely to be the highest in
ASEAN at 43 years, and about 15% of the population is likely to be above 65 years of age.
Malaysia: Population growth during this decade is likely to be the highest at 1.5% CAGR,
but Malaysia's population is likely to remain mostly young in 2020, with a median age of 29
years and only 7% of the population above 65 years of age.
Indonesia: The population is likely to both grow (0.9% CAGR) and age steadily through
this decade with the median age around 31 years by 2020.
Thailand: After Singapore, Thailand's population is likely to age the most by 2020. The
median age is likely to increase to 38 years by 2020 with roughly 12% of the population
above 65 years of age.
The Philippines: With strong population growth in ASEAN for the next few decades,
Filipinos are likely to remain the youngest in ASEAN for the foreseeable future. By 2020,
the median age is likely to remain low at 25 years, with only 4.9% above 65 years of age.
ASEAN Healthcare Sector
6
29 April 2014
Figure 14: Median age (x)
45
40
35
Figure 15: Percentage of population above 65 years
43
2000
2010
18
2020
38
38
16
34
34
31
29
30
14
26
2010
2020
12.3
30
28
12
25
24
24
25
2000
15.3
20
10
22
20
9.0
7.4
8
15
8.9
7.1
6
10
4
5
2
0
7.0
6.9
5.6
4.8
4.9
4.6
3.8
3.2
3.6
0
SG
MY
ID
TH
PH
SG
MY
ID
TH
PH
Source: UN Population database
By 2020, the aged population (above 65 years of age) in ASEAN could hit 36 mn from 25
mn in 2010. Indonesia will most likely be the major contributor to this increase. By 2050, it
could hit 100 mn with Indonesia home to more than half the aged in the region.
Interestingly, given better population growth in the Philippines, the number of aged could
reach the same level as Thailand, despite a much younger population.
Figure 16: Population above 65 years of age (mn)
120
2000
2010
2020
2050
99
100
ASEAN's aged population
could hit almost 100 mn by
2050, with Indonesia home
to more than half the aged
in the region
80
56
60
36
40
25
20
0.3 0.5 0.9 1.9
1 1 2
7
10
13
18
18
4 6
9
17
18
5
2 3
0
SG
MY
ID
TH
PH
Total
Source: UN Population database
Income growth/per capita GDP: Excluding Singapore, others should continue to
grow steadily from a low base
Income growth and per capita GDP are probably the most important factors driving private
healthcare expenditure spend, especially for economies crossing over certain per capita
GDP thresholds. Empirically, as per capita GDP increases and the middle class has higher
disposable income with basic needs more than satisfied, both the absolute and the share
of income spent on healthcare needs tend to show a non-linear increase. Except probably
Singapore, ASEAN countries are expected to see their overall income levels continue to
grow faster and potentially spend more on healthcare needs.
ASEAN Healthcare Sector
As the middle class gets
wealthier, both the absolute
and the share of healthcare
spend tend to show a nonlinear increase
7
29 April 2014
Figure 17: Per capita GDP (PPP US$)
70,000
1980
1990
2000
2010
2018F
60,000
50,000
45,639
40,000
30,000
20,000
12,745
8,659
10,000
2,374
634
4,740
2,986
796 2,155
1,521
0
SG
MY
ID
TH
PH
Source: World Bank
Singapore: An outlier in the ASEAN context with income levels already at developed
country levels. However, slower potential growth in income levels could be offset by a
rapidly ageing population and potential growth in influx of medical tourists.
Malaysia—Malaysia's per capita GDP level is probably the closest to threshold levels
where healthcare spend as a percentage of income sees a non-linear jump.
Indonesia: Has seen exceptional per capita income growth over the past decade and is
likely to again see the best growth over the near-to-medium term. With both absolute and
relative healthcare penetration levels being the lowest for Indonesia, it holds the most
potential to see a sustained acceleration in healthcare expenditure growth in ASEAN.
Thailand: While the country's per capita income level is almost half of Malaysia's,
Thailand's per capita GDP growth level is expected to be similar to that of Malaysia.
The Philippines: An interesting case where income levels are at par with Indonesia, but
healthcare penetration is already above ASEAN averages. Philippines' potential mediumterm income growth levels are expected to be only similar to Malaysia/Thailand.
Figure 18: Per capita GDP (base 1990 = 100)
800
700
1990
2000
Figure 19: Per capita GDP; CAGR (%)
2010
2018F
25
SG
MY
ID
TH
PH
1990 = 100
19.1
20
600
14.9
500
15
12.3
400
13.2
10.6
10
300
7.4
5.2
200
10.2
9.2
9.0
8.0
6.3
5.7
7.6
6.6
6.1
6.9
6.2
4.4
5
3.1
100
0
0
SG
MY
ID
TH
PH
'1980-90
'1990-00
'2000-10
2010-18F
Source: World Bank
ASEAN Healthcare Sector
8
29 April 2014
As the chart below illustrates, Indonesia provides an ideal combination of a big population
base, low penetration levels and faster expected income growth over the medium term. At
the other end of the spectrum, Singapore has the least population and is expected to see
lowest income growth over the medium term.
Figure 20: ASEAN—per capita GDP (US$ PPP) vs 2010-18F CAGR (%)
12.0
Indonesia provides an ideal
combination for a sustained
acceleration in healthcare
expenditure growth
Per capita GDP growth 2010-18F (%)
ID
10.0
8.0
PH
6.0
MY
TH
4.0
SG
2.0
Per capita GDP (US$)
0.0
0
10,000
20,000
30,000
40,000
50,000
60,000
Note: Size of the bubble indicates the size of the population.
Source: World Bank, Credit Suisse research
Penetration levels: Demand-supply gap
Clearly the underlying supply of healthcare services in ASEAN tends to lag the West by a
wide margin due to a multitude of factors. With the expected increase in healthcare
demand driven by an ageing population and growing income levels, supply shortage is
likely to require huge investments, either by the government or private sector, over the
medium to long term. This will likely ensure steady growth of the private healthcare
sector's revenue pool and its pricing power will improve until supply catches up with
demand.
Figure 21: Total healthcare expenditure as a percentage of GDP
20.0
'95
'00
Latest
ASEAN penetration levels
are only half of OECD levels
and one-third of the US
17.9
18.0
16.0
13.6
14.0
12.0
ASEAN average 3.8%
8.0
6.8
6.0
10.1
8.6
6.8
5.2
4.6
4.0
2.0
9.3
9.3
10.0
2.9
3.6
3.5
4.1
2.0
1.5
2.7
3.4
4.1
3.5
4.0 3.9
0.0
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
EU
Source: World Bank
ASEAN Healthcare Sector
9
29 April 2014
Singapore: Interestingly, while Singapore's income levels are close to those of developed
markets, healthcare expenditure as a percentage of GDP is only slightly higher than
ASEAN's, and lags the developed markets' by a wide margin. This is partly reflective of the
better efficiency of the Singaporean healthcare system and better preventive healthcare
services. Looking at it in the context of a rapidly ageing population, there appears to be a
lot of potential to increase its healthcare expenditure levels.
Malaysia: Health expenditure as a percentage of GDP is lower than the ASEAN average
and is higher than only Indonesia.
Indonesia: Indonesia healthcare expenditure penetration is probably among the least in
the world and is clearly the least penetrated among the most populated countries.
Thailand/Philippines: Ex-Singapore, Thailand and Philippines have relatively better
healthcare expenditure penetration levels in ASEAN.
Looking at the supply side of the equation will help us better gauge the potential for near to
medium term growth in healthcare revenue pool, future requisite investments in the
healthcare sector, and more importantly, pricing power of private healthcare players. The
intent and capacity of governments/regulators would be the final determinant of the
potential for private healthcare players to grow their revenue pool and increase profitability
levels.
Supply of doctors: The ASEAN average of one physician per 1,000 people is less than
half of that of OECD. Within ASEAN, Thailand and Indonesia have the least number of
doctors per capita. The higher per capita availability of doctors in Singapore might be
partly to serve the medical tourism industry.
Figure 22: Number of physicians per 1,000 people
3.0
'95
'00
2.8
Latest
2.5
2.5
2.2
ASEAN average 1.0
1.9
2.0
2.2
1.9
1.8
1.5
1.5
1.4
1.3
1.2
0.9
1.0
0.7
0.6
0.6
0.4
0.5
0.2
0.4
0.2
0.1
0.0
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
Source: WHO
Supply of hospital infrastructure: Not surprisingly, ASEAN hospital infrastructure
penetration is much inferior in the global context. Indonesia and Philippines stand out with
hospital beds per capita at roughly one-third the ASEAN average.
ASEAN Healthcare Sector
10
29 April 2014
Figure 23: Number of hospital beds per 10,000 people
180
'95
'00
Latest
154
160
134
140
120
100
ASEAN average 17
80
60
42
33
40
41
31
30
22
20
18
11
30
21
14
6
5
9
6
5
4
0
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
Source: WHO
In most cases, demand and supply tend to move in tandem unless there is regulatory
involvement like in China. In other words, most economies tend to build healthcare supply
in line with the increase in demand, albeit with a lag. While in Indonesia, both demand and
supply have a lot of catching up to do, Malaysia/Thailand can potentially meet more
incremental demand with the current supply.
Figure 24: Total health expenditure as a percentage of GDP vs hospital beds per capita
Hospital beds per capita
45
CH
40
35
SG
30
US
UK
25
TH
20
MY
15
10
IN
ID
5
PH
Health exp as % GDP
0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Source: WHO, World Bank, Credit Suisse research
Government healthcare spending: How to fund it?
Healthcare is a double-edged sword for governments, especially the ones with fiscal
deficits. While increasing public expenditure on healthcare could win more votes, it could
also prove to be a big strain on government budgets given the upfront capital investment
required and steady commitment to capex on an ongoing basis.
Lack of government fiscal
legroom provides a sweet
spot for private healthcare
players
The easier option for governments is to encourage private investments in the sector. While
eventually governments tend to restrict the profitability of private healthcare businesses,
the sector's profitability has to be high enough to attract private capital investment in the
early stages of the cycle. As a result, we expect regulations in the healthcare space to
ASEAN Healthcare Sector
11
29 April 2014
remain conducive to private healthcare players over the next ten to twenty years—a sweet
spot for them in terms of both growing rapidly and improving profitability.
Figure 25: Public as a percentage of total healthcare
Figure 26: Government hospital beds as a percentage of
expenditure
total beds
90
2000
Latest
80
ASEAN average 44
90%
83
80
77
75
70
80%
70%
56
60
60%
46
46
50
40
34
31
50%
40%
33
31
30
30%
20
20%
10
10%
0
0%
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
EU
SG
MY
TH
ID
PH
Source: World Bank, Government websites, Credit Suisse research
Singapore: Singapore's government is probably in the best position among ASEAN
countries to increase public spending on healthcare. The Singapore government's primary
focus over the medium term remains to make healthcare more accessible to its ageing
population. While we expect a sustained increase in public expenditure on healthcare, we
do not foresee crowding out of private healthcare spending. Private healthcare players
could continue to see growth as well as increased pricing power, driven by increasing
wealth levels, private insurance penetration, a sizeable wealthy migrant population, and
most importantly, Singapore's positioning as a medical tourism hub.
Malaysia: Malaysia probably has the least legroom among ASEAN countries to see a big
increase in public healthcare expenditure, with the government fiscal deficit the highest
among ASEAN at 3-4% of GDP. With the government's healthcare-related commitments
already high—70-80% of the total beds in government hospitals and the government
spending 46% of the total budget on healthcare—we expect its share of total healthcare
expenditure to remain at best flat or close to current levels. Nonetheless, we expect a
relatively favourable investment climate for healthcare players, not least to help achieve
the government's aim of promoting Malaysia as a medical tourism hub. However, we do
believe the government could do more by relaxing some of the land zoning laws and
restrictions on medical bill sizes to further accelerate private investment.
Indonesia: We rank Indonesia as the most conducive to local private healthcare players,
but the most restrictive for foreign investments (given restrictions on foreign investments
and rules restricting foreign doctors). Given the underpenetration level and expected
growth in healthcare needs, this provides a great opportunity for local players to expand
aggressively, but the private healthcare space remains extremely fragmented. The
government's ambitious plans to achieve universal health insurance coverage could
further expand the target market for private players.
Thailand: Interestingly, Thailand has the highest government spending (75% of total) in
healthcare and is at par with developed countries. Given the fiscal constraints and overall
economic uncertainties, we should probably expect government spending to normalise
from such high levels, enabling private players to grow.
ASEAN Healthcare Sector
12
29 April 2014
Figure 27: Government fiscal balance (percentage of GDP)
2.0
2013
2014F
2015F
1.1
1.0
0.3
0.0
-0.3
-1.0
-1.5
-2.0
-2.0
-2.5
-3.0
-2.2 -2.3
-2.0
-2.0
-2.2
-2.5
-3.0
-3.5
-4.0
-3.9
-5.0
SG
MY
TH
ID
PH
Source: Credit Suisse Economics research
ASEAN Healthcare Sector
13
29 April 2014
Figure 28: ASEAN—key government initiatives/focus on the healthcare sector
Country
Comments
Healthcare 2020 Masterplan: Released in 2012, contains various measures to enhance the accessibility, affordability and
Singapore
quality of healthcare to be implemented
Highlights of the masterplan include the addition of 1,900 acute beds and 1,800 community beds through to 2020, with
the latest target raised to 4,100
Healthcare to be the main driver of higher social spending over the next 10 to 15 years
Funding will be balanced between tax-funded subsidies, collective risk-pooling, individual co-payments and safety nets for
the needy, with a focus also on managing healthcare cost inflation
Healthy Living Masterplan to encourage a healthy lifestyle through healthier eating and initiatives to encourage exercise,
such as the "One Million Kg Challenge"
Key budget 2014 initiatives:
o
Government's direct spending on healthcare to increase to S$7.5 bn in FY14, from S$4 bn in FY11, with the
government's share of national healthcare expenditure increasing from 33% in FY12 to 40% or more
o
Enhancement of Medishield to Medishield Life, to provide universal coverage
o
Lifetime healthcare support for the Pioneer Generation, including additional subsidies for primary care and
specialist outpatient services
o
Medisave top-up for older Singaporeans, and increase in CPF contribution rates for older workers
o
Malaysia
National Health Strategic Plan (2010-2014) prioritised healthcare access and delivery
Shift of governmental focus towards a community-centric healthcare system since 2004
Objective for the government is to attain universal (100%) public health insurance in the next 3-5 years, for a population of
about 263 mn
As of 2012, approximately 60% of the total population was insured under various public and private insurance schemes
Effective 1 Jan 2014, a universal social security system has been implemented, based on Law No. 24/2011 regarding
Social Security Administrators, which builds on Law No. 40/2004 regarding the National Social Security System
The new system is intended to cover all employees and residents (including foreign residents) under a single healthcare
system by 2019 and a single employment benefit system by 2029
BPJS Health Care (BPJS Kesehatan) will administer healthcare benefits, and BPJS Employment (BPJS
Ketenagakarjaan) will administer employment benefits, which include old-age, pension, workplace accident and death
benefits
The four state-owned insurance companies, PT Askes, PT Jamsostek, PT Taspen, and PT Asabri—will be transformed
into non-profit public companies under the presidential jurisdiction for more stringent operational control and the adoption
of public health insurance will be made mandatory
Early adopter of Universal Healthcare, with implementation since 2002
In 2006, then Public Health Minister, Mongkol Na Songkhla, abolished the 30 baht co-payment and made the Universal
Healthcare Scheme free
Thailand has also recently reaffirmed its commitment to Universal Healthcare in the "Bangkok Statement on Universal
Health Coverage" in January 2012
Under the 11th National Economic and Social Development Plan (2012-2016), it was noted that public health expenditure
will increase at the expense of other investments, with targeted improvements in public health services, redistribution of
health personnel and the development of a national health database
Indonesia
Thailand
Increase in Tobacco Excise Duties by 10% to $388 per kg
10th Malaysia Plan (2011-15) aims to chart Malaysia's development into a high income nation, envisioned in Vision 2020
"Transforming Delivery of the Healthcare System" as part of the plan involves restructuring the national health system,
with three key initiatives:
o
Streamlining regulatory and service provision roles: MOH will focus mainly on governance and enforcement
o
Reviewing legislations and regulations: A review of existing legislation and the introduction of new regulations to
emphasise enforcement of accreditation, credentialing and privileging
o
Reviewing financing options:. A review of financing options also includes the introduction of cost sharing options
Other key thrusts include increasing capacity of healthcare infrastructure across primary, secondary and tertiary care
services, shifting towards wellness and disease prevention and increasing the doctor:population ratio from 1:1,380 in
2005 to 1:597 in 2015, and the nurse-population from 1:592 to 1:200
Budget 2014 also saw the abolishment of the sugar subsidy of 34 sen
Source: Government websites, Credit Suisse estimates
ASEAN Healthcare Sector
14
29 April 2014
Insurance coverage levels: Increasing penetration levels could boost health
expenditure
Except probably Singapore, the life insurance density and penetration levels in ASEAN
continue to remain very low. While data on medical insurance plans are sparse, it
continues to be low. However, medical insurance penetration, partly enabled by
government initiatives and increasing income levels, is increasing from very low levels.
This could potentially provide an additional boost to healthcare spending in the economy,
albeit exerting some influence on the pricing power of hospital operators.
Figure 29: Insurance density—life insurance premiums
Figure 30: Insurance penetration—life insurance as a
per capita (US$)
percentage of GDP
4,000
2000
14%
2012
2000
3,562
3,500
3,258
3,000
2012
12%
10%
8.4%
8.3%
2,500
8%
2,000
1,809
1,808
6%
1,500
4.2%
1,000
4.2%
2.5%
500
290
2%
125
33
16
107
3.7%
3.4%
4%
2.4%
1.1%
0.8%
ID
PH
53
0%
0
SG
MY
TH
ID
PH
CH
IN
JP
US
UK
SG
MY
TH
CH
IN
JP
US
UK
Source: Swiss Re, Credit Suisse research
WHO and UN consider universal coverage as key priorities
The World Health Organisation (WHO) in its report, Health systems financing: The path to
universal health coverage, has detailed its plan of action towards achieving universal
health coverage among countries globally. While specific budgets are still being developed
and discussed internally, the general objective is to support countries to modify their health
financing systems in order to move more rapidly towards universal coverage. Through
specific actions and policy assistance at the global and country levels, it is intended that by
end-2015, there would be increased coverage with needed health services, a reduction in
the proportion of out-of-pocket payments and a reduction in the proportion of the
population facing financial impoverishment as a result of out-of-pocket payments.
The UN General Assembly too has addressed the issue of universal coverage with a
resolution on affordable universal healthcare adopted in December 2012. While
acknowledging that that the choice of a health financing system should be made within the
ambit of each country, the resolution recognises that improving social protection towards
universal coverage helps support a more sustainable, inclusive and equitable society. In
addition, the resolution also encourages the transition of health systems towards universal
coverage while continuing to invest in and strengthening the health-delivery systems of
each country.
ASEAN Healthcare Sector
15
29 April 2014
Figure 31: ASEAN—universal healthcare schemes and implementation
Country
Singapore
Malaysia
Indonesia
Thailand
Universal healthcare schemes and implementation
The government encourages individuals to subscribe for approved health insurance policies by allowing them to pay the
premium from savings in the Medisave account
In addition, employers are encouraged by tax incentives to implement employer-sponsored health insurance schemes
"3M" framework for healthcare financing: Medisave, a compulsory individual medical savings account scheme;
Medifund, a medical endowment fund set up for needy patients; and Medishield, a low cost catastrophic medical
insurance scheme
Individual responsibility for one’s healthcare is promoted through the features of deductibles and co-payment in
MediShield
ElderShield, a severe disability insurance, is also available for subscription by Singaporeans to risk-pool against the
financial risks of suffering a severe disability
Many middle and higher income Singaporeans have also supplemented their basic coverage with integrated private
insurance policies (“Integrated Shield plans”) for treatment in the private sector
Significant enhancements to Medishield Life were recently unveiled, with amongst others, universal lifetime coverage,
removal of a lifetime claim limit, higher payouts, with the government to take on most of the costs of universal coverage
Traditionally, those who seek treatment in a private healthcare facility pay OOP for the medical fees
The increasing availability of medical insurance packages in Malaysia has decreased the reliance on OOP spending,
with 27 registered medical insurance providers in Malaysia as at 2012
Public healthcare is heavily subsidised by the government, with the government subsidised universal healthcare plan
providing coverage for public healthcare facilities
However, anyone who is not employed by a local Malaysian company is not eligible for public insurance and cannot take
advantage of its coverage
A National Health Financing Scheme is still at the draft stage but is expected to be funded through contributions from
employees, employers and the federal government (1 Care)
Effective 1 Jan 2014, a universal social security system "Jaminan Kesehatan Nasional" has been implemented, with
BPJS Health Care (BPJS Kesehatan) administering healthcare benefits
The government will fully cover health costs for those unable to pay for a minimal level of care, while those able to pay
for insurance will have fees based on whether they are fully employed and the level of coverage
"Single Payer" approach: All health care coverage under Askes (for civil servants), Jamsostek (for the private sector)
and Asabri (for the police and army) will be transferred to BPJS Health Care starting 1January 2014. By 2019, the
system is intended to cover the entire population of Indonesia
Employees already covered by company-provided health insurance plans that have contracted out of Jamsostek
healthcare benefits can retain that coverage until 2019
Contributions for funding healthcare will be split between employers and employees
Universal healthcare coverage since 2002
Previously, the Medical Welfare Scheme (WHS) provided tax-financed coverage to the poor and vulnerable groups,
while the Voluntary Health Card Scheme (HCS) was a public voluntary insurance programme for households who did
not qualify for the WHS
In 2002, Thailand reformed its public health financing system and introduced the National Health Security Act, extending
the scope of coverage to 18 mn people who were uninsured and to a further 29 mn who were previously covered by
less-comprehensive schemes
Thai citizens holding a Universal Coverage Health card issued by the National Health Security Office enjoy
comprehensive healthcare covering outpatient care, hospitalisation, prescription drugs and even more expensive
medical services, such as radiotherapy and surgery etc.
Source: Credit Suisse research
Medical tourism: ASEAN countries striving to find their niche
ASEAN is shaping up to be an increasingly dynamic hub for global medical tourism
offering world-class healthcare infrastructure, professionals and service at a fraction of the
potential cost in more developed countries. Rather than competing with each other for
market share, the countries in ASEAN are strategically positioning themselves to target
different segments of demand for medical tourism.
Singapore: With its superior infrastructure and premium quality healthcare specialists,
Singapore strives to maintain its cutting edge of medical services and offerings. Its
competitive advantage is mostly driven by its cost disadvantages—with a higher cost
structure, Singapore is least capable of competing on costs in the ASEAN context. Some
of the specialised areas in which Singapore has a relative advantage include complex
procedures such as organ transplant, cardiovascular surgery, reconstructive surgery and
hematopoietic stem cell transplantation. For example, Mount Elizabeth Hospital noted that
it performs the largest number of cardiac surgeries and neurosurgeries in the private
sector in the region. Pioneering procedures and adopting new technologies are also a
ASEAN Healthcare Sector
Singapore: Positioning itself
as the leader in premium
healthcare
16
29 April 2014
niche offering by Singapore hospitals, such as the use of robot-assisted surgical systems
and keyhole surgeries, thus promising better patient turnout and recovery rates.
Malaysia: It is fast emerging as the dark horse in the ASEAN medical tourism space, not
helped by a supportive government focussed on positioning Malaysia as a global medical
tourism hub. Malaysia's medical tourism potential is bolstered by its focussed investment
in improving healthcare infrastructure, ample supply of healthcare professionals and
geographical positioning/connectivity to its key target markets of Indonesia and the Middle
East. Over the medium term, its cost advantage and improving quality of medical
professionals could pose a serious threat to Singapore's medical tourism positioning.
Malaysia: A genuine
competitive threat to
Singapore and Thailand
Indonesia: Continues to be a net supplier of medical tourism dollars to neighbouring
ASEAN countries due to the perceived quality of medical specialists in the country. While
in theory, Indonesia's increasing tourist volumes could be potentially a rich source for
medical tourism (especially at tourist destinations such as Bali), it might be years before
Indonesia poses a threat to its neighbours.
Thailand: Only BH and BGH are active players in medical tourism in Thailand, with the
key advantage being relatively cheap pricing and a very strong general tourism sector (this
is important given that some medical tourists combine their health check-up with their
annual vacation). With growing economic integration among ASEAN countries, Thailand
should see strong growth.
Thailand: Riding on the back
of a strong tourism sector
Back to the future: ASEAN healthcare sector close to
a tipping point à la OECD in the 1970s
To summarise and conclude our thesis on ASEAN healthcare spending, we look at the
commonalities in terms of macroeconomic drivers between ASEAN and OECD countries.
Per capita GDP and ageing population are probably the most observable and clear drivers
across countries and time periods. In both cases, ASEAN now resembles OECD in the
early 1970s which was the starting point of the secular growth story of OECD healthcare
spending.
ASEAN per capita GDP: Following a similar pattern as OECD countries
As the following charts illustrate, absolute level of per capita GDP shows a good
correlation with the share of healthcare expenditure across countries through decades.
Figure 32: Per capita GDP vs health expenditure as a percentage of GDP
14.0
4.0
Health expenditure as
% of GDP
Health expenditure as % of GDP
3.8
12.0
US'90
ASEAN'10
3.6
10.0
3.4
ASEAN'05
3.2
US'80
8.0
3.0
US'70
6.0
JP'80AU'80
UK'80
4.0
AU'90
2.8
JP'90
2.6
AU'70
JP'70UK'70
2.4
2.0
Per capita GDP (US$)
0.0
0
5,000
ASEAN'00
UK'90
10,000
15,000
20,000
25,000
30,000
2.2
2.0
1,000
Per capita GDP (US$)
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Source: World bank, Credit Suisse research
Growth in per capita GDP in ASEAN in 2010 quite resembles that of OECD countries
when they were bunched together in the early 1970s. Interestingly, there is a bit of
ASEAN Healthcare Sector
17
29 April 2014
divergence in the pace of increase in healthcare expenditure driven by factors such as
ageing, lifestyle, regulation etc., though the overall direction of change is quite similar.
Figure 33: Per capital GDP (US$, PPP)
US
3000
UK
AU
JP
MY
ID
TH
PH
2500
ASEAN in 2010 quite
resembles OECD countries'
per capita GDP growth
when they were bunched
together in the early 1970s
2000
1500
1000
500
ASEAN
1995-2010
0
'60
'65
'70
'75
'80
'85
'90
Source: World Bank, Credit Suisse research
As illustrated in the table below, healthcare spending decisions and their importance have
a non-linear relationship with per capita GDP. The first real jump in allocations to
healthcare happens when per capita GDP moves above the US$5,000 level, and then
further improves to becoming one of the most important spending categories once per
capital GDP moves beyond the US$10,000 level. Notably, Indonesia, Thailand and
Philippines are on the verge of moving to the US$5,000-plus per capita GDP bucket, while
Malaysia could move comfortably into the US$10,000 bucket over the next few years.
Figure 34: Consumer product categories (typical growth stages)—future growth potential
at various levels of GDP per capita
Below $2,000
$2,000-$5,000
High
Cereals
Two Wheelers
Medium
Stimulants
Apparel
M eat
Low
Beverages
Appliances
Health Care
Education
Consumer Credit
Cars
PC/Laptops
Beauty Products
Tourism/Travel
M eat
Apparel
Stimulants
Beverages
Appliances
Cars
Two Wheelers
Cereals
PC/Laptops
Beauty Products
Health Care
Consumer Credit
Tourism/Travel
Indonesia, Thailand and
Philippines are on the verge
of moving to the US$5,000plus per capita GDP bucket,
while Malaysia could
comfortably move into the
US$10,000 bucket
Education
$5,000-$10,000
Beverages
Cars
Appliances
PC/Laptops
Beauty Products
Education
M eat
Apparel
Health Care
Consumer Credit
Tourism/Travel
Stimulants
Cereals
Two Wheelers
$10,000-$20,000
Education
Healthcare
Consumer Credit
Beauty Products
Tourism/Travel
Cars
PC/Laptops
Beverages
Cereals
Two Wheelers
Appliances
M eat
Apparel
Stimulants
Source: World Bank, Credit Suisse estimates
ASEAN Healthcare Sector
18
29 April 2014
Ageing population: ASEAN's silver age just beginning
While research across time periods shows that ageing in itself is not a big driver of
healthcare spending, combined with an increase in wealth levels it could result in higher
healthcare spending allocations. To some extent, there is a correlation between higher per
capita GDP and slowing birth rates, resulting in an ageing population.
Figure 35: Percentage of aged population (65 years+) vs health expenditure as a percentage of GDP
18.0
6.0
Health expenditure as
% of GDP
16.0
14.0
12.0
US'70
JP'90
AU'90
4.5
AU'80
JP'80
ASEAN'00
AU'70
JP'70
6.0
ASEAN'05
US'90
US'80
8.0
ASEAN'10
5.0
UK'70
10.0
5.5
UK'90
UK'80
Health expenditure as % of GDP
4.0
4.0
3.5
2.0
% of aged population
% of aged population
0.0
0
5,000
10,000
15,000
20,000
25,000
3.0
1,000
30,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Source: World Bank, Credit Suisse research
Historically, there appears to be a good correlation between overall ageing and healthcare
spending allocation. ASEAN countries with a couple of decades of steady economic
growth do not have populations as young as before, and will probably continue to age over
the next few decades. Again, in this respect, ASEAN countries quite resemble the OECD
countries in the early 1970s.
Figure 36: Percentage of aged population (65 years+)
US
18.0
UK
AU
JP
SG
MY
ID
TH
PH
16.0
14.0
12.0
10.0
8.0
6.0
ASEAN
1995-2010
4.0
2.0
0.0
'60
'65
'70
'75
'80
'85
'90
Source: World Bank, Credit Suisse research
ASEAN Healthcare Sector
19
29 April 2014
ASEAN heatmap: Picking the medium-term winners in
ASEAN healthcare
To summarise our analysis, we present a heatmap looking at the relative attractiveness of
various ASEAN countries f