Al Masah Capital: Southeast Asia Healthcare Sector

Al Masah Capital: Southeast Asia Healthcare Sector April 2014

EXECUTIVE SUMMARY Good health is not restricted to an individual, but encompasses an entire economy. Swift development of an economy is rare without substantial investment in human capital, and most Southeast Asian nations need to suitably recognize this fact. Healthcare is considered an integral part of national development across all Southeast Asian countries, from Singapore, a provider of world-class healthcare services, to Indonesia, the Philippines, and Vietnam, where the healthcare sector is still at a nascent stage. Southeast Asia is characterized by varied demographic and economic conditions that require a tailored healthcare model for each country. As reported by WHO, Southeast Asia spends about 3.8% of GDP on healthcare vis-à-vis developed nations such as the US and Japan that spend 17.6% and 9.2%, respectively. This reflects immense scope for development. Given the rise in elderly and population growth, higher income levels, increasing health awareness and demand for quality healthcare services, the region needs to bridge the demand-supply gap by raising the proportion of healthcare expenditure as a percentage of GDP. According to our research, Southeast Asia is poised for growth. The region s healthcare market is projected to be worth USD134.2 billion by 2020. The private sector is likely to continue being the dominant force, accounting for a 53% share. The private healthcare market is forecasted to reach USD71 billion in 2020, nearly double the size in 2010. Several factors are driving the healthcare market in Southeast Asia, particularly the elderly population (defined as people over 65 years). Southeast Asia is home to nearly 523 million people, with an elderly population of 30 million. The elderly population is expected to reach 43 million by 2020. As per the World Bank s estimates for the 10-year period 2010 20, the elderly population in Southeast Asia is likely to witness one of the highest growth rates at 3.6% per annum vis-à-vis Latin America and the Caribbean (3.3%), Sub-Saharan Africa (3.1%), and Europe and Central Asia (1.4%). The rise in elderly population means more business for healthcare providers, as the elderly generally seek more medical care and have more expensive health profiles than the younger populace. Southeast Asia has a high prevalence of lifestyle-related diseases such as diabetes and heart ailments. According to WHO, the adult mortality rate due to cardiovascular diseases and diabetes has remained unusually high compared to the rest of the world. Southeast Asia s healthcare market also has supply side attractiveness in the form of inadequate healthcare infrastructure. The region lags behind developed countries in terms of bed count. Taking the US as the benchmark, calculations indicate that the Southeast Asia would need to add nearly 699,000 beds by 2020. The region is also far behind developed economies such as the UK, Germany, the US and Japan in terms of availability of doctors and healthcare professionals. Our calculations indicate Southeast Asia would need to add nearly 958,000 physicians and 2.1 million nurses and midwives by 2020. The lucrative healthcare market in Southeast Asia has attracted international private players. World-leading private hospitals have entered developed healthcare markets such as Singapore, Malaysia, and Thailand. Various healthcare brands, such as Bumrungrad International, Mount Elizabeth and Gleneagles Hospital, have established their presence in the region. 2

Southeast Asia s medical tourism has become a travel buzzword for people seeking medical treatments. The region is fast emerging as a preferred destination for foreign patients. Countries such as Singapore, Malaysia, and Thailand are expected to witness a surge in the number of foreign patients due to their affordability as compared to other developed countries and availability of world-class infrastructure. Despite all favorable factors, the region faces various challenges such as lower number of beds and healthcare force as compared to developed nations. Southeast Asia s healthcare sector continues to successfully attract private equity (PE) firms from across the world, owing to various high growth factors mentioned above. During 2004 13, five PE buys worth USD20.5 million (disclosed value) took place in the sector. The most active PE firms in the region were KV Asia Capital, Symphony Asia Holdings, and Kendall Court Capital Partners. Singapore was the focus of PE deal activities in the sector, securing two of the five deals. General Medical and Surgical Hospitals segment garnered the maximum PE deals during 2004 13. The outlook for Southeast Asia s healthcare sector is positive. There is substantial scope for growth in each country in the region, from highly developed healthcare markets of Singapore to the emerging ones such as Indonesia, the Philippines, and Vietnam. 3

SOUTHEAST ASIAN ECONOMY Southeast Asia s growth prospects appear promising for 2014, led by improvement in the broader economy and robust domestic demand The International Monetary Fund (IMF) expects Singapore to report 3.4% GDP growth in 2014 In 2013, Southeast Asia witnessed mixed economic growth, with Singapore, the Philippines, and Vietnam performing strongly owing to robust export market and internal demand. This enabled the region to weather the political stalemate in Thailand and huge capital outflows on expected tapering by the US Federal Reserve. Southeast Asia s growth prospects for 2014 appear promising, considering expected benefits from economic recovery in the US and Europe and high domestic demand. Singapore s real GDP growth is estimated to have accelerated to 3.7% in 2013 compared to 1.3% in 2012. This was due to economic recovery in the US and Europe that offset the impact of elevated cost pressures and restrictions on cheap foreign labor. The International Monetary Fund (IMF) expects Singapore s GDP to grow 3.4% in 2014, driven by exports, as externally oriented sectors are likely to benefit from improvement in developed economies. However, the estimated labor shortage due to restrictions on the influx of foreign workers may slightly affect economic growth. Exhibit 1: GDP growth across Southeast Asia (%) Thailand 0.1 6.5 2.9 2.6 11 12 13 14 E 6.2 Vietnam 5.2 5.4 5.4 11 12 13 14 E 3.6 Philippines 6.8 7.2 6.5 5.1 Malaysia 5.6 4.7 4.9 11 12 13 14 E Indonesia 11 12 13 14 E 6.5 6.2 5.8 5.5 11 12 13 14 E Singapore 5.2 1.3 3.7 3.4 11 12 13 14 E Source: IMF, Central Banks of various countries, Al Masah Capital Research The IMF recently upgraded the Philippines GDP outlook to 6.5% for 2014 compared to the earlier forecast of 6.0% The Philippines GDP expanded 7.2% in 2013, outpacing the government s estimate of 6 7% and surpassing 6.8% growth in 2012. The growth was fuelled by the industry and services sectors, and a surge in exports that offset the adverse impact of the typhoon Haiyan. The economy grew 6.5% during 4Q 13, second only to China (7.7%). In 4Q 13, the services and manufacturing sectors accounted for 55% and 43% of the GDP, respectively. The IMF recently upgraded the Philippines GDP outlook to 6.5% for 2014 compared to the earlier forecast of 6.0%. This reflects moderating inflation, robust 4

domestic demand, and reconstruction activity following the typhoon. According to the IMF, the country s economy appears well-placed to absorb the impact of gradual tightening of the US monetary policy. The IMF expects Vietnam to post GDP growth of 5.4% in 2014, largely due to higher exports The IMF expects Malaysian economy to grow 4.9% in 2014, led by a rise in private investments and exports The IMF expects Indonesia s GDP to grow 5.5% in 2014, up from 5.8% in 2013 The IMF expects Thailand s GDP to grow 2.6% in 2014 Vietnam s GDP is estimated to have accelerated to 5.4% in 2013 from 5.2% in 2012. Although the banking sector failed to meet the government s lending target, growth in exports and foreign investments propelled the nation s economic growth. Vietnam s exports-to-gdp ratio increased to 75% in 2013 from 56% in 2009. Foreign investments inflow grew 10% to USD11.5 billion in 2013 compared to that in 2012. The services sector (43% of GDP) rose 6.6% year-on-year in 2013, followed by 5.4% year-on-year growth in industry and construction (38% of GDP). The IMF expects Vietnam to witness GDP growth of 5.4% in 2014, largely driven by higher exports. Going forward, global manufacturers may continue to shift their manufacturing base to Vietnam to benefit from its low-cost labor; this would boost the domestic economy. Malaysia s real GDP growth decelerated to 4.7% in 2013 compared to 5.6% in 2012 due to economic slowdown in China, Malaysia s second largest export destination. Additionally, business confidence weakened due to uncertainties surrounding the Federal Reserve s stimulus program. Higher inflation and fuel prices also took their toll on consumer confidence. On a positive note, the IMF expects Malaysia s economy to grow 4.9% in 2014, led by an increase in private investments and exports. The change was reflected in the country s economic performance in 4Q 13. The services sector (about 50% of GDP) rose 6.4% year-on-year due to higher trade and manufacturing activities, while the manufacturing sector (25% of GDP) advanced 5.1% year-on-year driven by domestic-oriented as well as export-driven industries. Indonesia s real GDP growth declined to 5.8% in 2013 from 6.2% in 2012. This is ascribed to the tight monetary policy, swelling of the current account deficit, and downward pressure on the Indonesian rupiah. In June 2013, Indonesia s central bank implemented a 1.75% hike in the key benchmark interest rate to narrow current account deficit and control inflation. The IMF expects Indonesia s GDP to grow 5.5% in 2014. The Indonesian government s thrust on infrastructure development may have a positive bearing on economic growth. Indonesia s consumer confidence has also witnessed an uptrend, although the tightening interest rate environment may limit growth prospects. Thailand s GDP growth weakened to 2.9% in 2013 compared to 6.5% in 2012 due to the political crisis in the country that crippled the execution of the budgeting process. During 4Q 13, Thailand s exports declined 3.6% sequentially and 1% on a year-on-year basis. Consumer confidence declined to a two-year low in January and factory output declined for the ninth consecutive month in December. Thailand s Finance Ministry downgraded the economic growth forecast for 2014 to 2.6% from the earlier 4.0%. On a positive note, exports from Thailand may be revived on improved economic outlook of trading partners. 5

AN OVERVIEW OF SOUTHEAST ASIA S HEALTHCARE SECTOR Global healthcare sector The global healthcare sector stood at USD5.9 trillion in 2010, accounting for approximately 9.2% of the global GDP During 2000 10, the total health expenditure by high-income and upper-middle-income countries expanded at a CAGR of 6.5% and 12.8%, respectively Our workings on data available from the World Health Organization (WHO) indicate the global healthcare sector was worth USD5.9 trillion in 2010, accounting for approximately 9.2% of the global GDP, or per capita healthcare spending of USD941. Healthcare spending in mature and high-income economies was much higher than that in the lower-middle-income and low-income nations in 2010. In high-income economies (taken as a group), the total health expenditure increased at a CAGR of 6.5% to USD4,828 per capita in 2010 from USD2,567 per capita in 2000 compared to the global average of 6.9%. In contrast, over the same period, health expenditure in upper-middleincome countries increased 12.8% per annum to USD384 per capita from USD115 per capita. In high-income economies (taken as a group), the total healthcare expenditure stood at 12.4% of GDP in 2010 compared to 9.9% in 2000. Exhibit 2: Healthcare spending across the globe Healthcare spend as % of GDP High Income 12.4% Upper Middle Income 6.0% Lower Middle Income 4.3% Low Income 5.3% Per capita spend (USD) 4,828 384 72 28 Region of the Americas European Region Global Average GCC Region Western Pacific Region MENA Region Eastern Mediterranean Region African Region Southeast Asia Region 9.3% 9.2% 3.5% 6.4% 4.0% 4.5% 6.2% 3.8% 14.3% 941 920 579 329 182 89 135 2,217 3,373 2010 2000 Source: WHO, Al Masah Capital Research In 2010, the US spent 17.6% of its GDP on healthcare compared to 4% by MENA The Americas (comprising 35 countries, including the US, Canada and Brazil), led the regions in terms of healthcare spend as % of GDP and on a per capita basis. However, country-wise, the US was the world s largest healthcare market; in 2010, it spent 17.6% of its GDP on healthcare. In 2010, Southeast Asia spent 3.8% of its GDP (about USD69.8 billion) on healthcare, or USD135 per person. 6

DEVELOPMENT OF HEALTHCARE SECTOR IN SOUTHEAST ASIA Southeast Asian healthcare market varies in structure and maturity The healthcare sector in Southeast Asia varies widely in terms of maturity as well as structure The healthcare sector in Southeast Asia varies widely in terms of maturity as well as structure. Singapore s healthcare market is represented by advanced medical workforce and cutting-edge medical technology, while those of Indonesia, the Philippines, and Vietnam are represented by provision for basic healthcare needs. Exhibit 3: Southeast Asian countries are in various stages of development in healthcare Emerging stage Developing stage Advanced stage Indonesia The Philippines Vietnam Malaysia Thailand Singapore - Provision for basic healthcare - Public healthcare expenditure in range of USD 30 to USD 40 per capita per year - Government contributes 35-50% of healthcare funding Source: Al Masah Capital Research - Good to high healthcare facilities - A well developed healthcare infrastructure majorly supported by public financing - Direct healthcare subsidies and social security schemes available - Advanced healthcare infrastructure - Private sector participation is high - Increased demand for more sophisticated healthcare services Singapore leads the region s healthcare spending Singapore, Southeast Asia s leading healthcare market, has a per capita healthcare expenditure of USD2,047, much higher than the regional average of USD135 The maturity of a healthcare market is well reflected in a country's healthcare spending. Singapore, Southeast Asia s leading healthcare market, has a per capita healthcare expenditure of USD2,047, much higher than the regional average of USD135. The per capita healthcare spending is extremely low in countries such as the Philippines (USD89), Vietnam (USD89), and Indonesia (USD85), indicating immense opportunity for healthcare development. 7

Exhibit 4: Healthcare expenditure by Southeast Asian countries Healthcare expenditure as a % of GDP 4.5% 4.4% 3.9% 4.1% 6.8% 2.8% 3.8% Per capita healthcare expenditure (In USD) 2,047 381 184 89 89 85 135 Singapore Malaysia Thailand Philippines Vietnam Indonesia Southeast Asia Source: IMF, The World Bank, Al Masah Capital Research Private expenditure on healthcare outperforms public spending Despite the government s heavy contribution, the development of healthcare sector largely depends on the private sector s participation The governments in Southeast Asian nations are making significant investments to improve their healthcare infrastructure and meet the growing demands. Despite this, the development of the healthcare sector largely depends on private sector participation. Exhibit 5: Break-up of per capita healthcare expenditure by private and public healthcare 1,405 (In USD) 642 169 211 138 46 57 32 56 33 54 31 74 61 Singapore Malaysia Thailand Philippines Vietnam Indonesia Southeast Asia Private Public Source: IMF, The World Bank, Al Masah Capital Research Private expenditure contributes nearly 55% of the total healthcare expenditure in Southeast Asia In most Southeast Asian countries, the share of private healthcare expenditure is higher than that of public expenditure. Private expenditure contributes nearly 55% of the total healthcare expenditure in Southeast Asia. The share is much higher in countries such as Singapore, Indonesia, the Philippines, and Vietnam, representing nearly two-third of the total healthcare expenditure. 8

Healthcare infrastructure Healthcare infrastructure in Southeast Asia is lower than that in most developed countries, indicating ample scope for growth. Bed density In order to provide healthcare infrastructure at par with those of developed countries, Southeast Asia would need an additional 699,000 beds by 2020 Singapore, the region s highly developed healthcare market, has a bed density of 2.7 per 1,000 people, much lower than that in other developed markets. Countries such as the Philippines and Indonesia have a bed density as low as 1 per 1,000 people. Considering the US as the benchmark, calculations indicate Southeast Asia would need an additional 699,000 beds by 2020. Exhibit 6: Bed density (per 1,000 people) No.of additional beds required by 2020 (In '000s) 13.8 Southeast Asia Indonesia 459 699 Philippines 163 Thailand 51 Malaysia 26 Singapore 0.15 3.6 3.0 3.0 2.7 2.1 1.8 1.1 1.0 1.0 Japan China UK US Singapore Thailand Malaysia Philippines India Indonesia Source: IMF, The World Bank, Al Masah Capital Research, Note: Data unavailable for Vietnam Bed density is defined as the number of beds available in public, private, general, and specialized hospitals and rehabilitation centers per 1,000 population. In order to provide healthcare infrastructure at par with developed countries, Southeast Asia would need an additional 958,000 physicians by 2020 Physician density The healthcare workforce, particularly physicians, is lower in Southeast Asia compared to that in other developed countries. The physician density is much lower in Thailand (0.3) and Indonesia (0.1). Considering the US as the benchmark, calculations indicate Southeast Asia would need an additional 958,000 physicians by 2020. 9

Exhibit 7: Physician density (per 1,000 population) No.of additional physician required by 2020 (In '000s) 2.8 2.4 2.1 1.9 1.5 Southeast Asia Indonesia Thailand 152 Philippines 152 Malaysia 45 Singapore 4 1.2 1.2 605 958 0.7 0.3 0.1 UK US Japan Singapore China Malaysia Philippines India Thailand Indonesia Source: IMF, The World Bank, Al Masah Capital Research, Note: Data unavailable for Thailand and Vietnam Physician density is defined as the number of medical doctors (physicians), including generalists and specialist medical practitioners, per 1,000 population. In order to provide healthcare infrastructure at par with developed countries, Southeast Asia would need an additional 2.1 million nurse and midwives by 2020 Nurse and midwives In Southeast Asia, the healthcare workforce, particularly nurses and midwives, is lower than that in other developed countries, but higher compared to other developing countries. Taking the US as the benchmark, calculations indicate Southeast Asia would need an additional 2.1 million nurses and midwives by 2020. Exhibit 8: Nurse and midwives (per 1,000 population) No.of additional nurse and midwives required by 2020 (In '000s) Southeast Asia 2,129 10.1 9.8 Indonesia 2,093 6.4 Singapore Malaysia 22 14 4.1 3.3 2.0 1.0 UK US Singapore Japan Malaysia Indonesia India Source: IMF, The World Bank, Al Masah Capital Research, Note: Data unavailable for the Philippines, Thailand and Vietnam Nurse and midwife density is defined as professional nurses, professional midwives, auxiliary nurses, auxiliary midwives, enrolled nurses, enrolled midwives, and other associated personnel such as dental nurses and primary care nurses per 1,000 population. 10

SOUTHEAST ASIA S HEALTHCARE SECTOR MARKET SIZE Private sector expenditure to surpass public expenditure The Southeast Asian healthcare market is projected to be worth USD134.2 billion by 2020, a CAGR of 6.8% over 2010 20 Southeast Asia s healthcare market is projected to expand at a CAGR of 6.8% over 2010 20 to USD134.2 billion by 2020. The private sector is expected to account for 53% of the overall pie by 2020. The public and private healthcare markets are expected to expand at CAGRs of 7.2% and 6.4%, respectively, over 2010 20. Exhibit 9: Southeast Asia s healthcare market by 2020 (USD billion) 2010 2020 55% Market size: USD69.8 billion 45% 53% Market size: USD134.2 billion 47% Public Private Source: IMF, OECD, The World Bank, Al Masah Capital Research The market size was estimated using data on population, healthcare expenditure (both in terms of % of GDP and per capita basis), ratio of government and private expenditure on healthcare, GDP, and inflation. The healthcare care sector in Southeast Asia is likely to be largely driven by emerging countries, particularly Indonesia, the Philippines, and Vietnam Emerging countries to drive future growth The healthcare care sector in Southeast Asia is likely to be largely driven by growth in the healthcare sectors of emerging countries, particularly Vietnam (CAGR of 10.4%), the Philippines (7.1%), and Indonesia (6.6%). Exhibit 10: Healthcare sector growth over 2010 20 (CAGR) Philippines 11.8% Singapore 14.9% Vietnam 11.0% Total market size USD69.8 billion Malaysia 15.6% Indonesia 28.9% Thailand 17.7% Vietnam Philippines Indonesia Malaysia Thailand Singapore 4.3% 7.1% 6.6% 6.4% 6.3% 10.4% Source: IMF, OECD, The World Bank, Al Masah Capital Research Growth in government funding, private participation, population, and income levels is expected to provide an impetus to the healthcare sector in these countries. 11

HEALTHCARE PROFILES OF SOUTHEAST ASIAN COUNTRIES SINGAPORE With a market size of USD10.4 billion, Singapore accounts for nearly 15% of the total healthcare market in Southeast Asia Singapore is a distinguished healthcare market not only in Southeast Asia but also globally. The country has one of the highest GDP per capita in the world (USD45,637) and is ahead of Japan, Germany, and the UK. Furthermore, Singapore s per capita healthcare expenditure of over USD2,047 is second only to Japan in Asia. Singapore is placed sixth in WHO s ranking of World s Health Systems. The country s rising affluent population is expected to drive the demand for more and better quality healthcare services in the future. With a market size of USD10.4 billion, Singapore accounts for nearly 15% of the total healthcare market in Southeast Asia. By 2020, the healthcare market in Singapore is expected to be worth USD15.8 billion, representing a CAGR of 4.3%. Exhibit 11: Singapore s healthcare market size by 2020 (USD billion) 2010 2020 59 Market size: USD69.8 billion 10 118 Market size: USD134.2 billion 16 Other Southeast Asian countries Singapore Source: IMF, The World Bank, Al Masah Capital Research Private sector accounts for over two-third of the total healthcare expenditure In Singapore, the private sector accounts for 69% of the total healthcare expenditure, with public sources contributing the remaining In Singapore, the private sector accounts for 69% of the total healthcare expenditure, with public sources contributing the remaining. To cater to the increasing consumer demand for sophisticated healthcare services, the country encourages the development of the private healthcare sector. Even if the government increases the funding to cater to rising demands, the proportion of healthcare spending is not expected to shift significantly. 12

Exhibit 12: Share of private and public sector expenditure on healthcare USD15.8 billion USD10.4 billion 10.6 7.1 3.3 5.2 2010 2020 Public Private Source: IMF, The World Bank, Al Masah Capital Research Healthcare regulatory system in Singapore Singapore's healthcare regulatory system mainly consists of two parties: Singapore's healthcare sector is under the purview of Ministry of Health with its statutory boards Regulator: Ministry of Health with its statutory boards Regulated: Public and private providers Registration and regulation for institutions: Healthcare institutions such as hospitals, medical centers, community health centers, nursing homes, clinics, and clinical laboratories are required to apply for a license under the Private Hospitals & Medical Clinics (PHMC) Act/Regulations. Registration and regulation for healthcare professionals: Healthcare professionals are self-regulated by relevant professional bodies. Registration and regulation for health-related products: Health-related products such as medicines, medical devices, and supplements are regulated by the Health Sciences Authority. 13

MALAYSIA Malaysia accounts for nearly 16% of the total healthcare market in Southeast Asia Malaysia ranks second in terms of the quality of healthcare services available in Southeast Asia. Malaysia spends nearly 4.4% of GDP on healthcare, nearly similar to that in Singapore. Furthermore, the country s per capita healthcare expenditure stood at USD381 in 2010. With a market size of USD10.9 billion, Malaysia accounts for nearly 16% of the total healthcare market in Southeast Asia. By 2020, the country s total healthcare market is expected to reach USD20.3 billion, representing a CAGR of 6.4%. Exhibit 13: Malaysia s healthcare market size (USD billion) 2010 2020 59 Market size: USD69.8 billion 11 114 Market size: USD134.2 billion 20 Other Southeast Asian countries Malaysia Source: IMF, The World Bank, Al Masah Capital Research Malaysia is fast emerging as a preferred destination for medical tourists, after Singapore and Thailand Public sector accounts for nearly 56% of the total healthcare spending, with the private sector contributing the remaining 44% Malaysia is rapidly emerging as a preferred destination for medical tourists, after Singapore and Thailand. The growth is expected to be led by affordable costs, specialized hospitals, and high-quality medical care. Public sector accounts for a major share of total healthcare expenditure Unlike Singapore, a larger share of healthcare expenditure in Malaysia comes from the public sector. The public sector accounts for nearly 56% of the total healthcare spending, with the private sector contributing the remaining 44%. Furthermore, the growth of the public sector (CAGR of 6.9%) is expected to outperform that of the private sector (CAGR of 5.8%) by 2020. 14

Exhibit 14: Share of private and public sector expenditure on healthcare USD20.3 billion USD10.9 billion 8.5 4.8 6.0 11.8 2010 2020 Public Private Source: IMF, The World Bank, Al Masah Capital Research Healthcare regulatory system in Malaysia The Ministry of Health (MoH) centrally regulates most public sector healthcare services; however, it exerts limited regulatory power on the private sector The healthcare system in Malaysia consists of tax-funded and government-run universal science and a fast-growing private sector. The Ministry of Health (MoH) centrally regulates most public sector healthcare services, but exerts limited regulatory power on the private sector. The MoH also regulates the pharmaceutical industry. Registration and regulation for healthcare professionals: Healthcare professionals are required to register with the statutory regulatory body. 15

THAILAND Thailand accounts for nearly 18% of the total healthcare market in Southeast Asia With a market size of USD12.4 billion, Thailand accounts for nearly 18% of the total healthcare market in Southeast Asia. In order to promote itself as a leading medical tourism destination, the country is rapidly developing its healthcare sector. Thailand s healthcare market is equipped with well-trained medical personnel and modern facilities. By 2020, the country s total healthcare market is expected to reach USD22.7 billion, representing a CAGR of 6.3%. Exhibit 15: Thailand s healthcare market by 2020 (USD billion) 2010 2020 57 Market size: USD69.8 billion 12 114 Market size: USD134.2 billion 23 Other Southeast Asian countries Thailand Source: IMF, The World Bank, Al Masah Capital Research In Thailand, the public expenditure accounts for nearly three-fourths of the total healthcare spending, while private sector accounts for the rest Private and public expenditure In Thailand, the government contributes nearly three-fourth of the total healthcare spending, with the private sector accounting for the remaining. The public share in Thailand is higher than that in any other country in the region. Exhibit 16: Share of private and public sector expenditure on healthcare USD22.7 billion 5.0 USD12.4 billion 3.1 17.7 9.3 2010 2020 Public Private Source: IMF, The World Bank, Al Masah Capital Research 16

Public expenditure is expected to increase at a CAGR of 6.6%, while the private sector expenditure is expected to grow at 5.0% over 2010 20 The three medical and health insurance funds National Health Security Fund (NHSF), Social Security Fund (SSF), and Civil Servant Medical Benefit Fund (CSMBF) bear the burden of escalating healthcare costs for the citizens. Public sector expenditure is expected to increase at a CAGR of 6.6% over 2010 20, higher than the private sector expenditure (CAGR of 5.0%) over the same period. Healthcare system in Thailand As with most countries in Southeast Asia, Thailand s healthcare industry comes under the direct purview of the Ministry of Health. Thailand s Ministry of Health has formed various governing bodies to ensure better governance. 17

INDONESIA With 238 million residents, Indonesia has the highest population in Southeast Asia. Despite this, Indonesia s healthcare system is largely underdeveloped and meets just the basic healthcare needs of the population. Indonesia s healthcare market size is USD20.2 billion, nearly 29% of the total healthcare market in Southeast Asia Indonesia is the single largest healthcare market in Southeast Asia, based on the number of opportunities available. The market is worth USD20.2 billion, nearly 29% of the total healthcare market in Southeast Asia. The country s healthcare market is expected to expand at a CAGR of 6.6% to USD38.3 billion by 2020. Exhibit 17: Indonesia s healthcare market by 2020 (USD billion) 2010 2020 Market size: 50 USD69.8 20 billion 98 Market size: USD134.2 billion 38 Other Southeast Asian countries Indonesia Source: IMF, The World Bank, Al Masah Capital Research Private sector accounts for twothird of the total healthcare spending in Indonesia Private and public expenditure The contribution of private sector is significant, accounting for nearly two-third of the total healthcare spending, while government sources contribute the remaining. Exhibit 18: Share of private and public sector expenditure on healthcare USD38.3 billion USD20.2 billion 24.4 12.9 7.3 13.9 2010 2020 Public Private Source: IMF, The World Bank, Al Masah Capital Research 18

The expenditure by the private and public sectors is expected to nearly double by 2020 Private and public sector expenditure is expected to nearly double by 2020. Private healthcare spending is forecasted to double to USD24.4 billion by 2020 from USD12.9 billion in 2010. Over the same period, public healthcare spending is expected to increase to USD13.9 billion from USD7.3 billion in 2010. Healthcare system in Indonesia Similar to most countries in Southeast Asia, Indonesia s healthcare industry comes under the direct purview of the Ministry of Health. 19

GROWTH DRIVERS Favorable demographics to drive growth Fast growing and aging population is expected to accelerate Southeast Asia s healthcare industry Elderly population in Southeast Asia is likely to witness one of the highest growth rates at 3.6% compared to other regions The rapidly growing population, particularly aging people, is expected to accelerate Southeast Asia s healthcare industry. The rise in elderly population means more business for healthcare providers, as the elderly generally seek more medical care and have more expensive health profiles than the younger populace. According to World Bank estimates for 2010 20, Southeast Asia is likely to witness a population growth rate of 1.0%, lower than that in other regions. However, over the same period, the elderly population (aged over 65 years) in Southeast Asia is likely to witness one of the highest growth rates at 3.6% per annum, much higher than that in Latin America and the Caribbean (3.3%), Sub-Saharan Africa (3.1%), and Europe and Central Asia (1.4%). Exhibit 19: Rise in population (CAGR %) over 2010 20 Overall Population (CAGR) Elderly population (CAGR) Sub-Saharan Africa 2.4% 3.1% Middle East & North Africa 1.4% 4.1% Latin America & the Caribbean 1.0% 3.3% Southeast Asia 1.0% 3.6% East Asia & pacific 0.5% 3.9% Europe & Central Asia 0.2% 1.4% Source: IMF, OECD, The World Bank, Al Masah Capital Research Life expectancy (at birth) in Southeast Asia has increased to 74 years in 2011 from as low as 57 years in 1960. Mortality rate has dropped to less than 18 per 1,000 live births from 122 per 1,000 live births in 1960. Rising income levels to surge demand for quality services The per capita income of Southeast Asia is expected to grow at 4.6% Out-of-pocket spending on healthcare in Southeast Asia is higher than that in the US and the UK. The per capita income of the region is expected to grow at 4.6% during 2010 20, with countries such as Vietnam, Indonesia, and the Philippines to witness higher growth than the regional average. These factors together would further accelerate the demand for improved healthcare services. High prevalence of lifestyle-related diseases The prevalence of cardiovascular diseases and diabetes in Southeast Asia is unusually high compared to the rest of the world Lifestyle-related diseases such as hypertension, diabetes, cancer, and heart ailments outcomes of a sedentary lifestyle and unhealthy diet have become a more common 20

feature in the region. The prevalence of cardiovascular diseases and diabetes in Southeast Asia is unusually high compared to that in the rest of the world. Exhibit 20: Mortality rates among adults due to cardiovascular diseases and diabetes 588 (Per 100,000 population) 273 199 Global average: 245 137 102 91 68 Southeast Asia MENA China US Germany UK Japan Source: WHO, Al Masah Capital Research Indonesia (700), the Philippines (690), Vietnam (680), Thailand (623), Malaysia (555), and Singapore (280) have high mortality rates among adults due to cardiovascular diseases and diabetes. Preferred medical tourism destination Thailand, Singapore, and Malaysia have emerged as the prime destinations for medical tourism in the region Medical tourism has become an increasingly common phenomenon in Southeast Asian countries. Availability of excellent healthcare centers, highly qualified and internationally accredited doctors and nurses, and low cost of medical treatments and procedures attract people seeking medical care to Southeast Asia. Thailand, Singapore, and Malaysia have emerged as the prime destinations for medical tourism in the region. Exhibit 21: Cost of major medical procedures (USD thousands) 130 Heart Bypass 160 Heart valve replacement 57 Angioplasty 19 11 9 13 10 9 13 13 11 US Singapore Thailand Malaysia US Singapore Thailand Malaysia US Singapore Thailand Malaysia Hip replacement Hysterectomy Knee replacement 43 20 40 12 12 10 6 5 3 13 10 8 US Singapore Thailand Malaysia US Singapore Thailand Malaysia US Singapore Thailand Malaysia Source: WHO, Al Masah Capital Research 21

Thailand: Thailand distinguishes itself as the true pioneer of medical tourism in Asia. During 1980 90, Thailand made significant investments in new medical technologies. Today, the country receives millions of overseas patients seeking a broad range of treatments, including cardiology, oncology, ophthalmology, and spinal surgery. Singapore: An efficient and excellent healthcare system has helped Singapore become a major leading international player in the healthcare domain. The Ministry of Health aims to strengthen and promote the country as Asia s leading world-class medical hub. Singapore receives over 400,000 medical tourists per year. 22

Thousands Southeast Asia Healthcare Sector KEY TRENDS IN SOUTHEAST ASIA S HEALTHCARE SECTOR Growth of private players The lucrative Southeast Asian healthcare market has attracted various domestic and The lucrative Southeast Asian healthcare market has attracted various domestic and international private players international private players. The region has witnessed the entry of some of the worldleading private hospitals, particularly in developed healthcare markets such as Singapore, Malaysia, and Thailand. These private players aim to provide world-class services to local and international patients. Some of the top private healthcare providers in Southeast Asia include: Singapore: Mount Elizabeth, Gleneagles Hospital, Mount Alvernia, and Parkway East Malaysia: Gleneagles Medical Centre, Prince Court Medical Center, and Pantai Hospital Thailand: Bumrungrad International and Bangkok Hospital Medical Center Exhibit 22: Western healthcare companies in Southeast Asia Source: Al Masah Capital Research Growing demand for nursing homes for elderly population Singapore is home to the highest proportion of elderly residents and the fastest aging population in Southeast Asia According to the World Bank, Singapore has the highest proportion of elderly residents and the fastest aging population in Southeast Asia. The country is aging faster than most European countries, the US, and Australia. Exhibit 23: Singapore s elderly population to reach 800,000 by 2030 4,500 4,000 3,500 3,000 3,526 3,772 3,789 3,818 295 338 353 380 4,278 800 2,500 2,000 1,500 3,231 3,433 3,437 3,438 3,478 1,000 500-2006 2010 2011 2012 2030 Total resident population Elderly population Total resident population Source: Ministry of Community Development (Singapore), Al Masah Capital Research 23

Currently, there are nearly 75 old age centers in Singapore, with an estimated bed count of 9,500. The country aims to add 3,300 beds by 2015 and another 3,300 by 2020 to accommodate the rapidly growing elderly population. Southeast Asia emerges as a preferred market for medical aesthetics Singapore, Malaysia, and Thailand are the most preferred destinations owing to their highly affordable cost The medical aesthetics market in Southeast Asia is growing rapidly. Singapore, Malaysia, and Thailand are the most preferred destinations owing to their affordability compared to developed markets such as the US and the UK. Singapore has emerged as the 10 th most popular destination for medical aesthetics (also known as cosmetic and plastic surgery). The most preferred cosmetic procedures include double eyelid surgery, breast augmentation, and face-lifts. Exhibit 24: Cost of major medical procedures across major developed and Asian countries (USD) Breast augmentation Buttock lift Facelift Eyelid surgery US 8000 11000 6500 6900 UK 8000 7800 7500 4800 Singapore 8000 4100 4650 1650 Malaysia 4000 3500 4000 790 Thailand 3000 3500 3500 375 Source: Al Masah Capital Research Medical aesthetics comprises all medical procedures that improve the physical appearance and satisfaction levels of patients by using non-invasive to minimally invasive cosmetic procedures. 24

KEY ISSUES AND CHALLENGES Access to quality healthcare facilities in developing countries The healthcare market is largely underdeveloped in Southeast Asia s fast growing economies such as Indonesia, the Philippines, and Vietnam The healthcare market in Southeast Asia s fast growing economies such as Indonesia, the Philippines, and Vietnam is largely underdeveloped. Healthcare infrastructure and workforce are considerably lower than the regional averages. There is only 1.0 hospitals bed per 1,000 population in Indonesia compared to the global average (3 beds per 1,000 population) and that in OECD countries (5 beds per 1,000 population). Furthermore, Indonesia has only 0.4 doctors per 1,000 population, lower than the global average of 1.4 doctor per 1,000 population. Due to poor healthcare infrastructure, these countries are losing a significant share of domestic healthcare spending as residents seeking treatment are travelling to neighboring countries. According to the Association of Indonesian Tour and Travel Agencies, nearly 1.5 million Indonesians travel overseas for medical treatment per year, implying an outflow of around USD1.4 billion of healthcare revenue every year. Scarcity of doctors and healthcare professionals The average number of physicians per 10,000 population in Southeast Asia is 21, much lower than that in developed economies Southeast Asia is far behind developed economies such as the UK, Germany, the US, and Japan in terms of availability of doctors and healthcare professionals. The average number of physicians per 10,000 population in Southeast Asia is 21, much lower than that in developed economies such as the UK (28), Germany (27), and the US (24). Furthermore, the number of dentists, and nursing and midwifery personnel per 10,000 population in Southeast Asia is much lower than that in developed economies. 25

PRIVATE EQUITY DEALS IN THE HEALTHCARE SECTOR Accelerated deal activity in Southeast Asia s healthcare sector Over 2004 13, the Southeast Asian healthcare sector witnessed five PE buys worth USD20.5 million Over 2004 13, the Southeast Asian healthcare sector witnessed five PE buys worth USD20.5 million (disclosed value). All the deals were executed during 2009 13, indicating a steady increase in PE interest in the healthcare sector. Two significant deals in the healthcare sector, for which investment values were available, are discussed below. In 2009, VinaCapital Investment Management Ltd invested USD10 million to acquire an undisclosed stake in Vietnam-based Fortis Hoan My Medical Corp. The company made the investment through the VinaCapital Vietnam Opportunity Fund. Established in 1999, Fortis Hoan My is the largest private healthcare provider in Vietnam, with 620 beds and 300 physicians at its four operating hospitals. In 2009, Abraaj Capital invested USD6.0 million to acquire an undisclosed stake in Vejthani, an Indonesia-based leading healthcare service provider. Abraaj Capital invested through the Aureos Southeast Asia Fund. Exhibit 25: PE deals in Southeast Asia in Healthcare sector Dealvalue in USD million 16 NA NA 4.5 NA No.of deals 2 2 1 2009 2010 2011 2012 2013 Source: Thomson Banker, Al Masah Capital Research All the five deals were executed by different PE firms across the region. Exhibit 26: Most active PE funds/firms in the Southeast Asia healthcare sector (2004 13) Source: Thomson Banker, Company, Al Masah Capital Research 26

Apart from domestic PE deals, the region witnessed 16 cross-border deals, with eight inbound and outbound deals each. The total value of cross-border deals stood at USD47 million (disclosed value). Most active countries for investment Singapore was the hub of PE deal activity in the healthcare sector during 2004 13 Singapore was the hub of PE deal activity in the healthcare sector during 2004 13. Two of the five deals announced in Southeast Asia over this period involved companies based in Singapore. Countries such as Malaysia, Vietnam, and Thailand were part of one deal each. Exhibit 27: Singapore led the region in terms of PE deals during 2004 13 Number of Deals Value* (USD million) Singapore 2 4.5 Vietnam 1 10 Thailand 1 6.0 Malaysia Note: *Includes disclosed value of deals 1 NA Source: Thomson Banker, Al Masah Capital Research Hospitals drew maximum interest of PE investors General Medical and Surgical Hospitals accounted for maximum PE deals during 2004 13 General medical and surgical hospitals accounted for nearly 60% of the PE deals during 2004 13. PE firms bought stakes in general medical and surgical hospitals such as Fortis Hoan My Medical Corp (Vietnam), Singapore Medical Group (Singapore), and Vejthani (Indonesia). 27

Exhibit 28: Hospitals secured maximum deals (2004 13) 20% Hospitals 20% 60% Pharmaceuticals & Diagnostics segments Others Source: Thomson Banker, Al Masah Capital Research Southeast Asia healthcare witnessed a few PE exits The Southeast Asia s healthcare sector witnessed two PE exits in the last 10 years. In 2012, Abraaj Capital Ltd sold entire stake in Thailand-based Vejthani Hospital, securing a threefold return on investments. In 2009, Abraaj Capital invested USD6.0 million to acquire an undisclosed stake in Vejthani through the Aureos Southeast Asia Fund. 28

COMPANIES IN THE HEALTHCARE BUSINESS Southeast Asia s healthcare sector has ample publicly listed entities The region has ~100 publicly listed companies operating in the healthcare domain There are around 100 healthcare companies listed on various bourses across Southeast Asia. With a market capitalization of USD9.5 billion, IHH Healthcare Berhad (IHH) is the most valuable healthcare company on regional stock exchanges, followed by Bangkok Dusit Medical Services Public Company Limited (BDMS) (USD6.3 billion). IHH Healthcare Berhad is one of the largest providers of healthcare services across Asia, Central & Eastern Europe, and Southeast Asia. IHH enjoys dual listing on the main markets of Bursa Malaysia and Singapore Exchange. The company caters to people spread across nine countries though 33 hospitals, medical centers, clinics, and an ancillary healthcare segment. In terms of valuation, the company is available at a priceto-earnings multiple of 49x and a price-to-book multiple of 1.7x. Established in 1969, Bangkok Dusit Medical Services operates the Bangkok General Hospital that offers treatment for cardiovascular, lung, neurological, and eye disorders, and genitourinary cancer; physical therapy; and medical imaging services. In terms of valuation, BDMS s stock is available at a price-to-earnings multiple of 33x and a price-tobook multiple of 5x. Exhibit 29: Healthcare companies listed on the various stock exchanges in Southeast Asia Company Country Market Cap Price-to-Earnings Price-to-Book EV-to-EBITDA USD million TTM Last TTM IHH Healthcare Berhad Malaysia 9,500 49.0 1.7 21.5 Bangkok Dusit Medical Services Thailand 6,268 32.7 5.0 19.6 Kalbe Farma Indonesia 6,045 35.8 9.1 19.6 Bumrungrad Hospital Thailand 2,044 27.8 7.3 16.8 Haw Par Corp Ltd Singapore 1,437 16.8 0.7 26.5 Raffles Medical Group Singapore 1,407 20.7 3.8 14.2 KPJ Healthcare Malaysia 940 23.0 2.7 22.9 Ramkhamhaeng Hospital Thailand 702 25.8 4.5 42.2 Samitivej Pub Co Thailand 612 19.5 3.6 12.3 Bangkok Chain Hospital Thailand 560 34.2 4.6 14.8 Kimia Farma Indonesia 442 23.3 3.1 10.5 DHG Pharmaceutical Vietnam 434 15.5 4.6 10.2 International Healthway Corp Singapore 414 10.9 3.2 99.8 Merck Tbk Indonesia 394 25.5 8.7 17.0 Vibhavadi MedIcal Center Thailand 385 21.9 2.9 13.1 Chularat Hospital Thailand 362 25.9 4.4 16.5 Q&M Dental Group Singapore 202 39.7 5.6 22.7 Darya Varia Labo Indonesia 200 18.1 2.5 7.4 Average 25.9 4.3 22.6 Source: Bloomberg, Data as of Mar 28, 2014 29

OUTLOOK FOR THE SECTOR Southeast Asia s healthcare sector is well placed for growth due to various favorable factors We estimate Southeast Asia s healthcare sector to grow at an annualized rate of 6.8% to USD134.2 billion over 2010 20 Southeast Asia s healthcare sector is well placed for growth. Although the region has world-class healthcare providers such as Singapore, a large part of it is still trailing in terms of healthcare infrastructure. Growth in income levels; population, particularly aging people; health awareness; demand for quality healthcare services; and number of hospitals would bolster the healthcare sector in the region. In addition, increasing government support and growing participation of private players would further aid growth. Increased private sector participation is likely to help the region bridge the healthcare infrastructure gap. In addition to healthcare demand from domestic populace, the region is emerging as a preferred destination among foreign patients. Countries such as Singapore, Malaysia, and Thailand are expected to witness a surge in the arrival of foreign patients owing to their affordability compared to other developed countries and the availability of worldclass infrastructure. We estimate Southeast Asia s healthcare sector to grow at an annualized rate of 6.8% to USD134.2 billion over 2010 20. Favorable domestic and external growth factors are expected to aid growth in the region. 30

Al Masah Capital Management Limited Level 9, Suite 906 & 907 ETA Star - Liberty House Dubai International Financial Centre Dubai-UAE P.O. Box 506838 Tel: +971 4 4531500 Fax: +971 4 4534145 Email: Research@almasahcapital.com Website: www.almasahcapital.com Disclaimer: This report is prepared by Al Masah Capital Management Limited ( AMCML ). AMCML is a company incorporated under the DIFC Companies Law and is regulated by the Dubai Financial Services Authority ( DFSA ). The information contained in this report does not constitute an offer to sell securities or the solicitation of an offer to buy, or recommendation for investment in, any securities in any jurisdiction. The information in this report is not intended as financial advice and is only intended for professionals with appropriate investment knowledge and ones that AMCML is satisfied meet the regulatory criteria to be classified as a Professional Client as defined under the Rules & Regulations of the appropriate financial authority. Moreover, none of the report is intended as a prospectus within the meaning of the applicable laws of any jurisdiction and none of the report is directed to any person in any country in which the distribution of such report is unlawful. This report provides general information only. The information and opinions in the report constitute a judgment as at the date indicated and are subject to change without notice. The information may therefore not be accurate or current. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable in good faith, but no representation or warranty, express, or implied, is made by AMCML, as to their accuracy, completeness or correctness and AMCML does also not warrant that the information is up to date. Moreover, you should be aware of the fact that investments in undertakings, securities or other financial instruments involve risks. Past results do not guarantee future performance. We accept no liability for any loss arising from the use of material presented in this report. This document has not been reviewed by, approved by or filed with the DFSA. This report or any portion hereof may not be reprinted, sold or redistributed without our prior written consent. Copyright 2014 Al Masah Capital Management Limited 31