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UBS downgrades Siemens Healthineers citing China market challenges

Published 26/09/2024, 13:32
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Investing.com -- Siemens Healthineers AG (ETR:SHLG) has been downgraded by UBS to a "neutral" rating from a "buy”, reflecting concerns over the company’s medium-term growth prospects. 

The downgrade stems from mounting challenges in Siemens Healthineers’ Chinese market, as well as the increasing competitive pressure from emerging Chinese players such as United Imaging and Mindray.

UBS analysts note that Siemens Healthineers’ leadership in imaging technology has historically been a key driver of its success, especially in markets like China, which has been a major growth engine for the company. 

However, the outlook for this critical region appears less promising in the near term. Even with the expected economic stimulus anticipated in 2025, “we expect the Chinese market to be at best flat in fiscal Q1 and to deliver only 5-10% growth thereafter even with the benefit of a stimulus,” the analysts said.

This subdued forecast contrasts sharply with the more optimistic projections held by market consensus.

UBS flags that local firms, particularly United Imaging and Mindray, are poised to capture a big market share from established Western companies like Siemens Healthineers. 

“We believe the Chinese ecosystem has created a unique set of circumstances that will lower Imaging market growth for western players from 5% to 3%,” the analysts said.  

Despite Siemens Healthineers’ strong product innovation, which offers some degree of protection, the company is still expected to see its growth tempered by this competitive pressure. 

The imaging sector, once a robust growth driver for Siemens, may no longer yield the above-sector growth rates previously anticipated.

Reflecting these challenges, UBS has revised its financial forecasts for Siemens Healthineers. 

The brokerage now expects group revenues to fall by 1% to 3% over the 2025-2028 period, leading to a corresponding drop in adjusted earnings per share by 2% to 6%. 

The lowered projections are largely a result of the company's reduced outlook in China, which has historically been a key market for its imaging division.

Additionally, UBS has also cut its price target for Siemens Healthineers to €51 from €56. This reduction in valuation is driven not only by the revised earnings forecasts but also by a lowered terminal growth rate of 1.75%, which reflects the expected long-term impact of competition from Chinese companies. 

Despite this downgrade, UBS maintains that Siemens Healthineers remains a high-quality business with solid market positions, particularly in imaging and other medical technology verticals. 

However, the company’s growth potential is now seen as more restrained, largely due to the headwinds in China and the broader competitive landscape. 

“SHL is a quality business with strong market positions, but we do not expect above sector growth and therefore do not expect the shares to rerate vs. it, as such rate the shares Neutral,” the analysts said.

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