RHB has maintained an “Overweight” call for the healthcare sector alluding to the fact that the healthcare stocks under their coverage have further room to run, premised upon new growth drivers and structurally higher cost of care.
The research house said that over the longer horizon, the sector remains on an upward trajectory owing to the ageing population, increasing adoption of private insurance, and higher quality of care. The names remain attractive given the defensive demand for healthcare and its prime position to benefit from the recovery
RHB said that the health director-general Dr Noor Hisham Abdullah has estimated that the accumulated backlogged surgeries in government hospitals are at c. 200,000 cases, including elective procedures.
Of the total, 60,000 cases are emergency and semi-emergency surgeries that were postponed following the third wave of COVID-19 infections. As of November, 71 private hospitals have been engaged in the outsourcing of services, with 8,338 surgeries conducted. “We expect outsourcing services to continue going into 2022, as healthcare providers work through the large backlog of cases to minimise mortality.
“We expect pharmaceutical players such as Duopharma Biotech (DBB MK, BUY, TP: MYR1.92) to benefit from higher prescription drug sales as operations in both private and public hospitals return to pre-COVID-19 levels.”
RHB said that the easing of international border restrictions would spur the recovery of medical tourism. The Malaysian government has alluded to the reopening of its borders by Jan 2022, while Singapore has recently expanded its Vaccinated Travel Lanes (VTL) list to 18 countries with seven more due for the green light by 15 Dec 2021.
It said that the recovery, however, will be gradual, as cautiousness will linger – against the backdrop of tapering COVID-19 related revenues. “That said, we believe certain elements of the latter will persist throughout 2022, notably on border testing, and hospital operators should continue to benefit from the recovery in domestic patient flows.”
It said that IHH Healthcare (IHH MK, BUY, TP: MYR7.35) has been relooking at its portfolio to potentially divest non-performing assets (NPA) to reduce its equity base while lifting profitability.
Such exercises could arise from India, where NPAs could be disposed of, with capital to be reallocated to Fortis for future growth. Elsewhere, IHH reiterates that China remains important, given the long-term demographic trends, but highlights the need for re-strategising to achieve success.
“Management is rethinking its clinical offerings to prioritise shorter gestation periods, rather than a variety of specialties, which is typical of a general hospital. This could be achieved through further partnerships with existing incumbents with specialised offerings.”