Healthcare stocks lose lustre after breakneck price surge

Expansion costs are chipping away at profits.

Healthcare players are losing their status as market darlings after the sector's outperformance in past quarters, according to a report by OCBC.

OCBC said that following the outperformance of the FTSE ST Health Care Index (FSTHC) in 2015, healthcare stocks now look unattractive on a broad-based level.

Apart from their relatively expensive valuations, healthcare players will also grapple with headwinds in coming quarters. For instance, healthcare providers like Raffles Medical Group and Q&M Dental will struggle with higher expansion-driven costs, while medical device manufacturers will face soft sales. However, glove manufacturers continued to perform well.

"The long term prospects for local healthcare providers remains clear. Following the outperformance of the FTSE ST Health Care Index (FSTHC) in 2015, the pace however has slowed for FSTHC, gaining only 1.4% vs. the STI’s decline of 0.4% YTD. The FSTHC forward PER currently remains above its 2-year historical average, still unattractive on a broad-based level,” OCBC said.

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