Healthcare sector hit by startup losses in Q3

On the upside, this means growth for hospitals as they expand in the next three years.

Singapore's healthcare sector has to endure pains from short-term startup costs for long-term gains in Q3, DBS Equity Research revealed.

Start-up costs and pre-operating costs of expansion plans hit the numbers for IHH Healthcare Berhad (IHH) in 2017 with the opening of Gleneagles Hong Kong and Acibadem Altunizade Hospital.

Singapore Business Review also recently reported IHH's profits crashed 53% due to startup losses from the Hong Kong hospital.

Subsequently, this has partially led the market to expect startup loss and pre-operating costs from the opening of hospitals in China by both IHH and Raffles from 2018 onwards.

"Whilst we believe in the potential future growth driven by these expansion plans as they begin to unfold in phases over the next three to five years, near term earnings growth will continue to be weighed down by start-up costs and pre-operating costs," DBS analyst Rachel Tan commented.

Meanwhile, mergers and acquisitions (M&A) of smaller healthcare service providers and the "corporatisation" of medical practices continue to drive growth.

Here's more from DBS Equity Research:

As healthcare is seen as a social good, there could be potential political pressure to manage healthcare cost inflation.

Following recent concerns from insurance service providers and industry stakeholders, the Singapore government conducted a study and has published guidelines to manage healthcare cost inflation.

Whilst there have not been any major changes to the healthcare system and regulations on private healthcare, potential pressure from stakeholders may change the ‘landscape’ of private healthcare sector in the longer term.