Health care has obviously dominated the world's attention in 2021. Having gained a short-term shot in the arm, private- and public-sector support for the sector is sure to continue in the years ahead, particularly as Asia ages.
Today, I'm highlighting five healthcare stocks to watch in Asia for 2021. This builds on Wednesday's Top 5 Asian Tech Stocks for 2021, showcasing five smaller tech companies in Asia worth a look; and Monday's Top 5 Asian Consumer Stocks for 2021, spotlighting five consumer-related plays that stand to gain in the year ahead as Asia recovers from Covid-19.
JD Health International (HK:6618)
Online health clinics are a new and booming business in China. Fears about contracting the coronavirus have driven patients online, looking for remote care rather than wandering the halls of a crowded hospital. There's still scope to explore profitable business models. China forecasts that its population of people over 60, already at 17%, will almost double by 2050.
The Chinese government is inventing the regulatory framework on the fly, which introduces a high degree of unpredictability. However, the Beijing government is likely to favor the largest players. It views stimulating online health care as a way to patch up the holes in the country's lacking healthcare system. The hope is that online medicine can serve rural and elderly populations better, providing access to better doctors. It should also reduce the strain on hospitals, which are the first destination at the moment even for people with minor maladies. Insurance reimbursement for online medical care is currently available only in a handful of cities, with the scheme due to be rolled out nationwide over the next two to three years.
JD Health, which launched in 2018 as a subsidiary of China's second-largest e-commerce platform, JD.com (JD) , already turns an impressive profit off its online pharmacy. It is the largest online retail pharmacy in China, with a 29.8% market share, according to Frost & Sullivan. JD Health had 72.5 million active users as of mid-year, the company says, up 35.5% in a year.
It says it hosts 100,000 daily online consultations. I'd imagine regulators will look at that business model, in which the company gets a commission from the fees doctors are able to extract from their patients/users. Frost & Sullivan also shows it is the largest online healthcare platform in China by revenue, with C¥10.8 billion (US$1.5 billion) in revenue last year.
The company conducted a US$3.5 billion initial public offering at the start of December, the largest in Hong Kong for the year, with the shares rising 56% for the day. The shares will join the burgeoning Hang Seng Tech Index as of Dec. 22.
The stock has continued that strong run and is now 111.1% above the offer price of HK$70.58. AliHealth is the competing offering from JD.com's competitor Alibaba Group Holding (BABA) . Full name Alibaba Health Information Technology (HK:0241), it has a U.S.-listed ADR under ALBBY. JD Health and AliHealth both benefit from feedthrough to drug purchases from the original e-commerce platform.
M3 (T:2413) and MTHRY
The pandemic has propelled the adoption of health tech and the shift to digital communications and operations in the healthcare industry. M3 launched LINE Healthcare in December 2019, which offers online consultations with doctors, and offered free Covid-19 sessions through June. Its AskDoctors online-consulting service has run since 2005.
On the industry side, it provides second opinions to doctors as well as career-related information on m3.com. The company has launched a platform, myMR-kun, to support online marketing from pharmaceuticals companies.
The LINE short-message app is the dominant one in Japan, with 83 million users. M3 works with about 280,000 doctors, or 90% of the total in Japan. What remains to be seen is if M3 can convert that heavy LINE use to one of its monthly subscription plans, with tiers at ¥1,000 (US$9) and ¥2,000 (US$18).
Covid has certainly driven a surge not just in online medical examinations for health conditions but also online medical consultations for the general public. M3 hopes to use its cloud-based electronic patient record system to launch an Artificial Intelligence-driven disease-prediction service. It also stands to gain from growth in its overseas clinical-trials business, which is able to expand faster with greater digitization of the process.
Nomura identifies it as the top pick in this sliver of the market, due to gain from greater deregulation. The company has also made good headway in cutting expenses this year.
Operating profits are forecast by Nomura to almost double from the ¥47.0 billion level in fiscal 2020, which ended in March, to ¥87.9 billion (US$809 million) for the fiscal year through March 2022. That's well ahead of the impressive 26.7% growth for the medical sector as a whole.
As a whole, profits show greater promise in health care, pharmaceuticals and video games than any other sector in Japan. Healthcare net income should by the 2022 tax year stand at 224% of 2018 levels, the highest in any industry. Pharma earnings should be up 163%. (Games and amusement profits should be at 219% of 2018 levels).
Gakken Holdings (T:9470)
Gakken is a publishing company that has long had an arm in medical textbooks, journals and online learning for nurses. It now aims to improve its digital offering and create an educational infrastructure linking local communities and, for instance, residents of long-term care facilities, which it also develops. Its stated aim is to promote a society that sees people live a healthy life "from 0 to 100" through the use of Gakken's digital version of comprehensive community health care.
Gakken develops serviced centers both for long-term care and for child care, and bought the home care operating group Medical Care Services in 2018. It is working with local governments to develop the "Gakken Community-based Integrated Care System," locating serviced accommodation in appropriate places to serve Japan's ageing population, and near health-care-related facilities such as clinics and pharmacies.
It plans to widen its own adoption of "digital transformation" in delivering long-term care and healthcare consumer education. Gakken is working with the Artificial Intelligence technology of its partner Fronteo, with which it has a capital and business alliance, to introduce behavior prediction and dementia prevention into the long-term care of elderly people. Its educational materials and sessions aim to prevent cognitive decline.
This is an industry-leader position, and should also lead to gains in margins and efficiency. Gakken also scores high in terms of social responsibility for the utility of its materials, community outreach and inclusive hiring.
Sysmex (T:6869) and SSMXY
Medical-equipment maker Sysmex stands to gain from the incoming Biden administration. Its medical hardware includes hematology analyzers used for blood tests in basic medicine. The company is due to introduce its next generation of such devices in 2021. Sysmex will also likely launch amyloid beta blood tests to identify Alzheimer's disease in the early stages.
Biden's plan to widen the scope of public health insurance should support broader adoption of equipment like that from Sysmex, and a substantial reduction in the burden of health insurance on middle-income households. This would set it apart from Obamacare in 2014. Biden's progress may be impeded by the U.S. Senate, however, if it remains in Republican hands.
Sysmex has also formed a joint venture with Kawasaki Heavy Industries (KWHIY), Japan's very first robot-making company, to develop medical robots. The j.v., called Medicaroid, is working on a robot to assist during surgery. The Japanese government gave that industry fresh impetus in 2018 by expanding insurance coverage from two robot-assisted surgical procedures to 14 treatments in fields such as pulmonology, gynecology and gastrointestinal surgery.
Ramsay Health Care (ASX:RHC) and RMYHY
Ramsay is the largest operator of private hospitals in Australia, accounting for 27% of private hospital beds. It also runs hospitals in Malaysia, Indonesia, Britain, France, Italy and Scandinavia.
Australia is an attractive investment market for health care, with relatively low levels of per-capita healthcare spending, which also looks low as a share of GDP. These absolute amounts will need to rise as the Australian population ages. The share of the population that is over 65 now stands at 15.9%, up from 12.3% in the last two decades, and set to increase as Baby Boomers continue to move past that mark. That generation (born 1945-1964) is about half-way through the transition.
Ramsay's business has, ironically, been disrupted by Covid-19, which led to increased operational costs. It should therefore show a strong rebound next year. Ramsay is the top Aussie healthcare pick for Jefferies, which estimates it has 21% to run in terms of share price.