ASX shares in the aged care sector have emerged as top performers this year after several years of decline.
Aged care operators including Estia Health Ltd (ASX: EHE) and Japara Healthcare Ltd (ASX: JHC) have surged an impressive 48% and 75%, respectively, year-to-date.
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Why ASX aged care shares dipped to multi-year lows
The aged care industry has faced a number of regulatory and funding headwinds, raising concerns over weaker earnings and rising debt levels.
Aged cares shares first plunged in late 2016 after the government announced new service fee guidelines for residential aged care customers. This meant that several revenue sources would not be permissible under the new legislation. Between 26 August and 5 September 2016, the Estia share price plunged from $4.72 to as low as $2.08.
Two years later, the royal commission investigation into the aged care sector took another jab at these beaten up ASX shares.
The March COVID-19 sell-off last year added further insult to injury, which saw the Estia share price briefly trade for less than $1.
On 2 March this year, the final results of the royal commission were released — you can find a summary of recommendations and responses here.
What's ahead for ASX aged care shares?
The Federal 2021/22 budget will see $17.7 billion of funding flow into the aged care sector over the next five years. The funding will address a number of royal commission recommendations including a $650 million investment to grow and upskill the aged care workforce and requirements that staff spend at least 3 hours and 20 minutes a day with each aged care resident from 2023 onwards.
Despite the Estia and Japara share price surging a respective 48% and 75% year-to-date, the recovery story is still in its early days. Both companies continued to deliver net losses during February half-year results, driven by factors including lower occupancy rates and shareholder class action settlements.
Looking forward, Japara's half-year results flagged ongoing COVID-19 uncertainties and that the "funding environment is unclear and occupancy, although stabilising, remains weakened".
While the road ahead could continue to be challenging for ASX aged care shares, we're seeing the share prices of some of the sector's companies emerge as top performers, bouncing strongly off multi-year lows.
