Malaysia’s Healthcare sector’s results for the June 2023 quarter were affected by the Aidil Fitri festive season and Turkish presidential election.
RHB, in its Malaysia Sector Update said today (Sept 8) patient volumes at KPJ and IHH Healthcare’s (IHH) Malaysia division dropped by 7% QoQ and 4% QoQ. Nevertheless, hospital activities remained robust despite the high base of 2Q22 (revenue – KPJ: +14% YoY, IHH: +7% YoY).
This may have a spillover effect on the pharmaceutical players under our coverage – Duopharma Biotech (DBB) and Kotra Industries (Kotra) – which may also see a pick-up in export sales.
KPJ’s 2Q23 core earnings surged by 61% YoY, boosted by increases in bed space and its bed occupancy rate (BOR, +7ppt YoY). These were offset by a 4% decline in patient volume.
Its inpatient visits rose by 14% YoY, as the patient mix became more tilted towards complex cases.
Meanwhile, IHH’s 2Q23 earnings were flattish YoY, no thanks to its higher cost of operations as well as the depreciation of the Turkish lira or TRY. Revenue intensity across segments improved, whereas overall patient volume grew by 2-15% YoY (depending on the division).
Patient footfall at its Singapore facilities softened by 4% YoY, likely due to the shortage of nurses, which also led to constraints in its bed capacity.
Pharmaceutical players
DBB’s 2Q23 earnings were below expectations, dragged by a sluggish performance from its consumer healthcare (CHC) division, and subdued sales to the public sector. These were offset by a pickup in its export sales.
Kotra’s FY23 results exceeded our forecasts as the result of a pick-up in export sales, as well as better demand for prescription pharmaceutical products in the local market.
Nevertheless, its revenue and earnings continued to soften QoQ, as consumer demand for over-the-counter (OTC) products normalised.
Outlook and sector pick. RHB maintain their OVERWEIGHT sector rating, underpinned by inelastic demand which offers investors a defensive play amid the ongoing macroeconomic challenges.
The firm likes KPJ’s robust patient growth trajectory, the encouraging return of medical tourists to Malaysia, and the group’s strategic move to upscale its existing hospitals into tertiary and quaternary care centres.
This should enable it to focus more on complex and uncommon procedures, resulting in better revenue intensity ahead.
As RHB remains sanguine on the outlook for healthcare service providers, they think KPJ’s greater domestic focus offers better earnings stability.
Within the pharmaceutical sector, RHB maintains that the momentum of drug restocking activities within the CHC and OTC product segments are expected to normalise – such restocking activities should taper off when concerns over the shortage of drugs dissipate.
Key downside risks to their sector call are higher-than-expected operating costs, lower-than-expected patient visits/revenue intensity growth, and the implementation of an unfavourable drug pricing mechanism from the Ministry of Health.
