Fleeing the NHS, and how to profit from the exodus

Medical tourism is an industry in rude health. Increasing numbers of people around the world are travelling abroad for treatment, lured by lower costs, shorter waiting times and higher standards. Around 77,000 UK patients went overseas in 2006, up 30% on the previous year, according to the International Passenger Survey, while top destinations such as Singapore and Thailand have seen foreign patient numbers rise by 20% annually in recent years.

So how can you profit from this? The best region is Asia. India, Singapore and Thailand offer many large, quoted hospital groups, making it possible to invest directly in the providers. They also have expertise in complex, higher-margin treatment such as cancer, heart surgery and transplants, and benefit from governments that are very keen to encourage this new money-spinner.

Singapore is the easiest market for UK investors to access. The first is Parkway Holdings (SP:PWAY), which runs hospitals and clinics in Singapore, Malaysia, China and Brunei; the Singapore hospitals account for around 50% of its revenues and around 50% of patients in them come from abroad. It also has a joint venture on a hospital in Kolkata with India's Apollo Hospitals and will be building a second one at Mumbai. On a forecast pe ratio of 22.5 times and a dividend yield of 3.8%, Parkway is attractively priced, but, on the downside, sentiment is against the stock at present.

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Parkway recently completed a rights issue to fund expansion and repay some short-term debt. This looks prudent, but it has not been well received by the market, especially given that some investors already felt that it had overpaid for a new hospital site in Singapore. It still looks an appealing long-term buy, but there is a risk of share-price weakness in the near future.

Shares in Raffles Medical Group (SP:RFMD), on the other hand, have held up better. The firm operates the Raffles Hospital in Singapore, which accounts for around 55% of its revenues (the remainder comes from clinics in Hong Kong and Singapore) and around 35% of hospital patients come from abroad. There is scope to expand patient numbers in its Singapore facility and it is also looking at international expansion options. On a forward p/e of 22.4 times and a dividend yield of 1.9%, the stock represents good value given its growth potential.