What: It what could be described as a slightly awkward move by leading private hospital operator Ramsay Health Care Limited (ASX: RHC), the group released an announcement to the market just before the opening of trade yesterday to respond to a press article in The Australian…
In response to the article – which speculated that a partnership was to be formed between Ramsay Sime Darby Health Care (RSD) and the Guangzhou Overseas Chinese Hospital – Ramsay stated that while discussions had been held, "these discussions are incomplete." Ramsay then pointed out that "there can be no certainty that a transaction will result from these discussions".
Fast forward to around 15 minutes before the end of Thursday's trading session and Ramsay filed another ASX announcement this time stating that group's Malaysian affiliate (namely RSD) had signed a new joint venture (JV) with none other than the Guangzhou Overseas Chinese Hospital!
So What: The aim of the JV is to establish a number of high-quality international hospitals in China's Pearl River Delta in collaboration with Chinese state-owned medical institutions. Importantly, according to the ASX release, the Chinese government has indicated its support for the proposed JV.
Now What: While peers such as Healthscope Ltd (ASX: HSO) and Pulse Health Limited (ASX: PHG) offer investors exposure to the positive thematic of an aging domestic population and increased health spend, Ramsay really stands apart from its peers in terms of its overseas exposure and overseas growth opportunities.
With the city of Guangzhou home to over 13 million people and the Guangdong province holding a population of over 104 million, the growth opportunities from this JV would appear significant.
The problem for investors who must decide if they wish to buy into this growth is that a huge amount of future growth potential would already appear to be factored into Ramsay's share price.
While the intrinsic value of the stock may over time grow into the current share price, investors today run the risk of overpaying and achieving a low return on their investment – even if Ramsay's superb business growth continues.
