Hong Leong Investment Bank has an “Overweighted” call on the healthcare sector with a “Buy’ recommendation on IHH Healthcare Bhd, KPJ Healthcare Bhd, UEM Edgenta Bhd and Pharmaniaga Bhd.
It has also reintroduced a new set of forecasts for IHH, KPJ as well as UEM Edgenta, due to a transfer in analyst coverage.
HLIB said that the Malaysian healthcare industry has seen some sizable M&A deals being transacted in the recent 3 years, predominantly involving hospital operators.
“However, the Covid-19 outbreak has also slowed and disrupted certain M&A activities (possibly KPJ’s privatisation deal).
“As we emerge from the pandemic, we opine that sectors like the healthcare industry is bound to experience a stronger recovery compared to other economic sectors, therefore this should continue to drive interest for more M&A activities within the sector going forward,” the investment bank said
On IHH, it has maintained a higher SOP derived TP of RM7.55, implying a PE multiple of 45.8x on its FY22 EPS of 16.5 sen. HLIB said that its earnings forecast represents a YoY growth in earnings of 9%/14% in FY22/FY23, underpinned by an expected continued recovery in inpatient volumes.
HLIB has upgraded KPJ to a “Buy recommendation” with a higher TP of RM1.35, based on SOP valuation methodology.
“Our new earnings forecast implies a YoY earnings growth of 122%/23% in FY22/FY23, as we expect stronger patient footfall recovery and better case mix as the Covid-19 situation in Malaysia gradually come under control. Our TP of RM1.35 represents a PE multiple of 35.9x (at close to +0.5SD of its 5-year average) on its FY22f EPS of 3.8sen,” it said.
HLIB also maintain a ”Buy” Recommendation on UEM Edgenta with a lower SOP derived TP of RM2.25 due to a lower net cash position. It said that new projections reflect a YoY net profit growth of 102% and 18% in FY22 and FY23.
It said that this was fuelled by a recovery in its consultancy and infrastructure management segment, as well as better margins across all business segments (especially the HSS segment due to more commercial jobs). ”We deem the valuations fair, as our TP of RM2.25 implies a PE multiple of 14.7x (close to -0.5SD of its 5-year mean) on its FY22f EPS of 15.3 sen.”
HLIB has maintained its earnings forecasts and its “Buy” Recommendation for Pharmaniaga unchanged with a TP of RM1.13. Its trading price derived on a PE multiple of 21.5x, on its FY22f EPS of 5.2sen.
It said that it continues to like Pharmaniaga for the vaccination of adolescents in Malaysia, the potential use of Sinovac as booster shots in Malaysia, as well as potent potential export of Sinovac vaccines to other countries.
