Check out healthcare sector's biggest loser in 2012

Its profits sharply dropped by 9.7%.

According to OCBC Investment Research, the healthcare companies under its coverage reported a contrasting set of results during the recently concluded 4QCY12 results season. 

OCBC noted, while Raffles Medical Group (RMG) delivered double-digit YoY revenue and core PATMI growth of 14.9% and 13.8% respectively, which were in line with its expectations, Biosensors International Group’s (BIG) results were disappointing and missed its and the street’s estimates.

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Its topline fell 4.0% YoY due to weak licensing and royalties revenue, while core earnings dipped 9.7% YoY and fell short of our forecasts by 20.3%. However, despite challenges faced by its licensee Terumo Corp in Japan, BIG’s core drug-eluting stent (DES) business continued to perform well, with  market share gains in key markets.  

We note that other companies in the healthcare sector have largely performed well in 4Q12. Notably, IHH Healthcare Berhad (IHH) saw its revenue jump 79% YoY due to the consolidation of its Turkish subsidiary Acibadem Holdings and organic growth from existing operations.

Core PATMI (excluding exceptional items and contribution from the sale of its Novena Medical Suites) increased 17%. Q&M Dental also grew its revenue (+16.0%) and PATMI (32.1%) by doubledigits, driven by higher sales from existing dental outlets and contribution from new dental outlets in Singapore and Malaysia. 

However, not all healthcare service providers showcased positive growth trends, as Pacific Healthcare’s FY12 net loss of S$9.0m meant that it has now reported five consecutive years of net losses.  

We believe that the growth trajectory of the healthcare sector remains positive in general, aided by steadfast industry fundamentals such as an aging population and rising affluence in the region which has bolstered the purchasing power of the middle-class.

Hence we maintain our OVERWEIGHT rating on the sector. Both BIG and RMG have earmarked expansion plans to propel their growth moving forward.

We believe that BIG’s recent share price decline could be partly due to the market getting jittery over the uncertainty of its acquisition timeline as interest payments from its recently issued S$300m fixed rate notes will kick in from Jul this year.

However, we are optimistic that management would be able to finalise earnings accretive acquisition(s) in the near future as some of its M&A discussions are nearing completion, according to its 3QFY13 announcement.

Organically, we expect BIG’s next-generation BioFreedom™ drug-coated stent to augment its growth from FY15.