A look at healthcare stocks that are beneficiaries of Zika virus

As the saying goes, “A man’s pain is another man’s gain”. Although this saying might not fit well in the context of what many Singaporeans are showing great concerns when stock investors are seen as profiting from the outbreak of the Zika virus, the Zika virus is seen by many opportunists as a good opening to take advantage of the widespread fear, and panic to ‘load’ up their investment portfolios with various healthcare names with the hope to profiting them eventually. However, one needs to take some time to explore other information before making such hasty investment decisions

According to Singapore’s Ministry of Health (MOH), Zika virus is an infection that is transmitted by the bite of an infected Aedes mosquito, which is known carrier of the dengue and Chikungunya viruses. MOH noted that Zika is relatively mild disease, and is less dangerous than dengue. However, Zika virus infection may sometimes cause microcephaly in the unborn foetuses of pregnant woman. Microcephaly is a congenital condition that manifests itself as birth defects in which a baby is born with significant smaller heads than usual.

In this article, we attempt to draw a simple inference of how the Zika virus might impact the local healthcare stocks in terms of share price performances, and whether Zika virus has played some roles in helping to prop up the stock prices of some healthcare stocks.

The FTSE ST Health Care Index

Source: Phillip POEMS Stock Trading Platform
Source: Phillip POEMS Stock Trading Platform

The FTSE ST Health Care (FSTHC) is a market capitalisation weighted index that tracks the performance of the Health Care sector. The FSTHC tracks the performance of the Health Care sector. The index consists of 27 locally-listed stocks.

Name of Healthcare Stock SGX Code Stock Price as of Fri, Aug 26 (S$ per share) Stock Price as of Sept 05 (S$ per share) Percentage (%) Change
First Real Estate Investment Trust AW9U 1.315 1.325 0.8%
Haw Par Corp. H02 8.820 9.180 4.1%
RHT Health Trust RF1U 0.960 1.025 6.8%
Parkway Life Reit C2PU 2.460 2.490 1.2%
Raffles Medical Group BSL 1.505 1.540 2.3%
IHH Healthcare Bhd Q0F 2.200 2.160 -1.8%
Q&M Dental Group Singapore QC7 0.700 0.720 2.9%
Cordlife Group P8A 1.240 1.230 -0.8%
Tainjin ZX T14 0.780 0.770 -1.3%
Health Management International 588 0.415 0.495 19.3%
Riverstone Holdings AP4 0.885 0.900 1.7%
Talkmed Group 5G3 1.005 0.995 -1.0%
Singapore O&G 41X 1.180 1.150 -2.5%
iX Biopharma 42C 0.275 0.260 -5.5%
ISEC Healthcare 40T 0.310 0.320 3.2%
Healthway Medical Corp. 5NG 0.028 0.029 3.6%
Singapore Medical Group 5OT 0.300 0.315 5.0%
QT Vascular 510 0.072 0.073 1.4%
International Healthway Corp 5WA 0.038 0.040 5.3%
Techcomp Holdings T43 0.240 0.240 0.0%
Medtecs International Corp 546 0.053 0.048 -9.4%
Vicplas International 569 0.129 0.135 4.7%
AsiaMedic 505 0.063 0.066 4.8%
UG Healthcare Corp 41A 0.315 0.310 -1.6%
Star Pharmaceutical AYL 0.180 0.167 -7.2%
Pharmesis International BFK 0.400 0.475 18.8%
Suntar Eco-City BKZ 0.220 0.165 -25.0%

Source: Singapore Exchange

The above table shows the share performances of the 27 healthcare stocks on the last trading day on Friday, August 26, 2016 before the first set of reports of the widespread outbreak of the Zika virus hit Singapore starting from the weekend of August 27. The fourth column from the left is the latest stock price performances of the healthcare stocks as of September 05. The stock names that are highlighted in bold comprises of mostly hospital operators, and consumer products related companies that we think are the frontline in the treatment of the Zika virus. These companies comprise of hospital operators including Raffles Medical Group, IHH Healthcare, and Parkway Life Reit which is majority owned and managed by IHH.

We have also included Singapore O&G and Haw Par Corp. as the former is in the field of fertility care for pregnant women who are seen as the most vulnerable to succumb to the Zika virus, and the latter is a distributor and manufacturer of many mosquito repellents that are in high demand and have to be restocked after demand outpaces supply.

No causality relationship seen so far between Zika virus and healthcare stocks

With the rising number of new Zika virus cases, we have not found any significant causality relationship among Zika virus and the healthcare stocks based on the percentage stock changes from August 26 till September 05. In fact, the FSTHC rose by 2.3 per cent during the period discussed, and it is not even in the double digit percent gain as the reports of the outbreak of the Zika virus keep coming in.

However, despite of not finding any significant causal relationship among healthcare stocks, and Zika virus, we did notice that the stock price changes of about 4 per cent for Haw Par during the period analysed is quite significant given that the stock surpassed the $9.00 resistance level to end at $9.18 on September 05. We think that the shortage of mosquito repellents, coupled with reports of empty shelves of mosquito repellents in many of pharmacy stores, might have prompted many investors to hoard the shares of Haw Par Corp.

How do the fundamentals measure up for these key healthcare stocks

Stock Name Net profit (+ or -) Current Ratio Operating Cash Flow (+ or -) Net Profit Margin (%) EBITDA/Interest Expense Debt/Equity
Haw Par Corp. Positive 6.776 Positive 102.5% 131.415 1.718
Parkway Life Reit Positive 1.666 Positive 65.2% N/A 57.686
Raffles Medical Group (RMG) Positive 1.088 Positive 16.9% 971.284 5.411
IHH Healthcare Berhad Positive 1.437 Positive 10.6% 14.049 30.308
Singapore O&G Positive 7.341 Positive 32.2% N/A N/A

Source: Singapore Exchange

We noticed from the above table that Haw Par Corporation Limited is among the few stocks as having the highest net profit margin achieved, and has the largest stock price change among the rest of the four stocks that were being compared with. The leverage factor as measured by Total debt-to-equity ratios stood at around 1.718, as compared to the rest of the healthcare stocks we have picked out which range from close to 58 times for Parkway Life Reit, to 5.4 times for Raffles Medical Group. Through this leverage factor measurement, we noticed that Haw Par Corporation Limited shows some prudence in managing its debt levels.

Summary

This article illustrates a simple exercise to examine the impact of Zika virus and stock price performance of the 27 healthcare stocks listed on the FSTHC. Although a simple causal relationship cannot be drawn conclusively among the outbreak of the Zika virus and the share price performances of the healthcare stocks highlighted, we hope that we have created some investor awareness of these stocks, and provide some information about the fundamentals of hese stocks to take home with.

About Peak Hour 87 Articles
Hock Meng has 12 years of financial industry experience, including three years working as a research associate for a hedge fund company in Wall Street, US, with assets under management (AUM) close to US$400 million during its peak in 2008. Hock Meng is a Chartered Alternative Investment Analyst (CAIA) holder and passed his Level I Chartered Financial Analyst examinations. Hock Meng is licensed to provide investment advisory services in the area of unit trusts, dividend portfolio construction, securities wrap services, and life insurance planning