If you’re looking for stability and resilience, you might want to check out these industries.
Education, healthcare and financial technology have weathered last year’s downturn well.
Healthcare, in particular, stands out as being a “recession-resistant” sector.
Most people will not scrimp on healthcare expenses.
Because of this, healthcare is considered a non-discretionary expense that tends to hold up well during tough times.
However, not all healthcare stocks are attractive.
It’s important to look for attributes such as a strong competitive moat, quality assets, a long track record and a stellar dividend payment history.
Here are two healthcare stocks you can consider adding to your investment watchlist.
Parkway Life REIT (SGX: C2PU)
Parkway Life REIT owns a portfolio of 53 healthcare and healthcare-related assets with a portfolio size of S$1.99 billion as of 31 March 2021.
Its portfolio consists of three private hospitals in Singapore along with 49 private nursing homes in Japan.
Parkway Life REIT also owns strata-titled lots in a specialist clinic in Kuala Lumpur, Malaysia.
The REIT has reported a continued increase in its gross revenue and net property income (NPI) despite tough economic conditions.
For its fiscal 2021 first quarter (1Q2021), gross revenue inched up 0.4% year on year to S$30 million while NPI crept up 1% year on year to S$28 million.
Distribution per unit (DPU) increased by 7.4% year on year to S$0.0357, bringing annualised DPU to S$0.1428.
At the last traded price of S$4.39, the REIT’s units offer a prospective dividend yield of 3.3%.
Parkway Life REIT has reported an uninterrupted DPU growth since its IPO in 2007, underscoring the resilience of its portfolio of healthcare assets.
DPU started at S$0.0683 in FY2008 and has more than doubled to S$0.1379 in FY2020.
Its Singapore hospital properties contribute roughly 60% of gross revenue with the master lessee being IHH Healthcare Berhad (SGX: Q0F), an international healthcare operator with 80 hospitals in 10 countries.
These properties are on a triple net lease arrangement, meaning the REIT is not responsible for all property-related expenses.
Furthermore, the leases have a favourable rent review structure that is linked to the consumer price index (CPI) plus 1%, guaranteeing at least a 1% year on year growth in the minimum rent.
Meanwhile, most of the REIT’s Japanese properties also incorporate an “up only” rent review mechanism.
Under this arrangement, if CPI is negative, then rent will remain unchanged.
The REIT manager has been active in recycling capital for Parkway Life REIT.
In January this year, the REIT divested a non-core property in Japan at S$37.1 million or 12% above its original purchase price, yielding a gain on disposal of S$5.1 million.
Back in December last year, the REIT acquired another nursing home in Tokyo for S$21.2 million.
Raffles Medical Group Ltd (SGX: BSL)
Raffles Medical Group Ltd, or RMG, is an integrated private healthcare provider that offers a range of primary and tertiary care services.
The group operates a network of three hospitals and over 100 multi-disciplinary clinics and employs over 2,700 employees.
RMG has reported a robust set of financial numbers despite facing setbacks in the first half of 2020.
For its fiscal year 2020 (FY2020), revenue increased by 8.8% year on year to S$568.2 million, lifted by the government’s national projects in the fight against COVID-19.
Operating profit jumped by 16.1% year on year to S$88.4 million while net profit rose 9.3% year on year to S$65.9 million.
The group provided new services such as polymerase chain reaction (PCR) and serology testing and expanded its flexible workforce by 1,300 during the year.
As of 31 December 2020, RMG had cash balances of S$202.1 million and generated a free cash flow of S$73.1 million.
In line with the good results, the group has declared a final dividend of S$0.02, bringing FY2020’s dividend to S$0.025. Shares of the healthcare operator offer a trailing dividend yield of around 2.2%.
The group’s first hospital in China, located in Chongqing, is seeing an improvement in year on year patient loads.
Construction for Raffles Hospital Shanghai is nearing completion and the new hospital is preparing to receive patients in the second quarter of 2021.
RMG continues to grow its business with the announcement of a strategic partnership with China Life Healthcare, a subsidiary of China Life Insurance (SHA: 601628).
Both parties signed a memorandum of understanding to explore collaborations and initiatives in areas such as healthcare management, training and the provision of medical services.
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Disclaimer: Royston Yang owns shares of Raffles Medical Group.
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