People who have been following news would know that Omicron has broke through Hong Kong's Covid-19 Defense. Previously known for its strict quarantine policy for foreign arrivals, Hong Kong has a 21 day quarantine period for foreign arrivals. While this has proved very effective, the breach in its Covid Defense came from reportedly 2 Cathay Flight Attendants who flouted isolation rules and was subsequently fired.
In Hong Kong, the fight against Covid has largely been a top-down approach. This is in the form of the government setting rules and measures to combat Covid. Unlike a couple of countries who has chosen to live with the virus, HK's approach is a Covid Zero approach as it aims to reopen its borders with China and possibly other countries when it has managed to achieve zero covid cases for a prolonged period of time.
Against the backdrop of the outbreak, HK government has initiated the following measures
1) Urging Social Distancing and people to not go out unnecessarily.
2) Locking down estates for mandatory testing and asking citizens from blocks/areas that are identified as dangerous to undergo compulsory community testing.
3) Implementing measures such as Dining-in will be banned after 6pm, closing of bars, ktvs, cinemas. Also live performance has been banned.
4) Quarantining blocks when cases are too high in the block
5) Stepping up on vaccination by urging public to go for vaccination and increasing amount of vaccinations centres.
As such, Testing, Quarantine and Vaccination will be key.
In lieu of the recent developments, 4 stocks have appeared to be interesting medical plays that one can consider in picking up.
1) Kato HK (HKEX: 2189)
-A company in the operations of aged care business. It derives most of its revenue from aged-care business. However it has took part in the operations involved with quarantine operations and this has allowed it to improve its profitability
- The company is involved in the quarantine operations at Asia-World Expo. This has propelled its revenue and profits. As such, it trades at an implied PE Ratio of 8.
- Revenue related to the quarantine operations
1H 2020: 10.0 million HKD ( 8.7 % of total revenue)
2H 2020: 32.0 million HKD ( 22.8% of total revenue)
1H 2021: 30.9 million HKD ( 20.5% of total revenue)
- With news of quarantine facilities being packed. It is believed that Kato HK would continue to benefit.
- A company involved in the outsourcing of nursing staff, it has been able to grow its revenue by providing of services in the community vaccination centre.
- The company trades at an implied PE of 5.5
- The company is also involved in the vaccination drive by providing both Sinovac and Pfizer jabs.
- A company involved in the medical services in Hong Kong, mainly via private clinics.
- The company has ventured into the administration of vaccine. This has resulted in the company to increase its revenue by 44% and turn in a profit from a loss making position in 2020.
- The company trades at an implied PE of 3
- As such, with the increased need to administer Covid 19 Vaccines and increased testing due to the recent outbreaks, this company is likely to benefit.
- A company that has business in clinic operation in Hong Kong and China. It also has a lab for testing covid 19 results and is currently participating in HK's community testing centre operations.
-In terms of financial results, the company has reported 2 years of unprofitability in the last 5 years. The company has some issues with getting back money owned to individuals via promissory notes and therefore had to write them off.
-Nevertheless, the company has turned in a profit for 1H 2021 and declared a dividend policy of not less than 30% payout.
-The company trades at a book value of 0.67, with 47.5% of its market cap being cash. Unfortunately its PE is not accurate at there are present of one-off losses. However, a rough estimate assuming 1h results hold the same for 2h, it would be around 17.