Here’s why the market may be over-optimistic for Raffles Medical’s China projects

China’s private healthcare is still in its infancy.

Current valuations imply a premium to Raffles Medical Group’s 400-bed Shanghai hospital, but analysts say that the market may be looking at the project with rose coloured glasses.

According to a report by CIMB, reasons often cited for the market’s bullish outlook include the strong demand for private healthcare, favourable demographics, regulatory reforms, as well as the Shanghai hospital’s burgeoning affluence.

Street expectation is also for average treatments costs in Shanghai to be higher than in Singapore, though CIMB believes most analysts have also conservatively pegged their forecasts to RMFD’s Singapore operations.

The report notes that there is a long-term angle to these arguments, and that there has been a recent surge of foreign investment in China’s private healthcare space. But given that China’s private healthcare is still in its infancy, operational and execution risks remain the biggest hurdles. Overall, research suggests average high-end healthcare prices in China are some 30% below the Singapore average.

“Further, our China peer group also lags our Singapore peer group on several profitability metrics,” adds the report.

In addition, one of the biggest operational challenges could stem from attracting qualified physicians, especially given that China faces a shortage of healthcare workers—there are 3.8 healthcare workers per 1,000 population versus the OECD average of 10.6. There may also be legacy issues around the concentration of top doctors in the public hospitals.