Looking into the healthcare sector, RHB expects the private healthcare sector’s earnings growth to persist into 2024 – underpinned by relatively inelastic demand, rising health awareness among consumers, and a rapidly ageing society anchoring generic drugmakers’ mid- to long-term growth prospects. While the sector has defensive attributes, the house continues to recommend that investors lean towards domestic-centric names, as these should offer better earnings stability.
The key focus for KPJ in 2024 will involve driving efficiency (primarily for hospitals in gestation periods) and, to a greater
extent, unlock its potential value – with an ultimate objective of bridging the gap between its valuation and that of IHH Healthcare (IHH). Note that KPJ’s valuation discount against IHH’s in EV/EBITDA terms has narrowed to 5% as
at 18 Jan vs the 5-year historical average of 18.5%. As for IHH, RHB expects it to continue focusing on improving the number of beds, as outlined by its new 5-year bed count target of 3,800 units. Given the hyperinflation situation
currently in Turkey, RHB said it believes that IHH will continue to diversify its revenue towards patients paying in ex-Turkish lira (or TRY) denominations, while adopting timely price adjustments to mitigate any cost pressures.
The outlook for HT in Malaysia remains positive, thanks to the availability of world-class facilities and services that come at competitive prices, on top of the easy access to such healthcare and communication with medical professionals. According to our channel check with Malaysia Health Tourism Council (MHTC), HT in the country is expected to generate revenue of MYR2bn in 2023 (8M23 actual: MYR1.4bn), surpassing its pre-pandemic peak of MYR1.7bn in 2019. To further strengthen the HT landscape, MHTC has outlined several initiatives such as the Flagship Medical Tourism Hospital Programme, cross-selling tourism and healthcare services and facilities, customer service digitalisation, and identifying and developing new market opportunities.
Within the pharmaceutical sub-sector, the house expects the improved consumer sentiment (according to RHB Economics) to bode well for the demand for over-the-counter products. That said, the pick-up in export momentum is expected to benefit Duopharma Biotech and Kotra Industries, as revenue from their overseas markets accounts for 6% and 45% of their
turnover.
RHB maintains its OVERWEIGHT sector rating, underpinned by relatively inelastic demand trends, coupled with rising health
awareness among consumers as well as the trend of an ageing society. KPJ is the Top Pick, premised on its strategic rebranding and upscaling exercise, ii) a gradual pick-up in the HT segment, and iii) improvement in operating efficiency as its hospitals under gestation are expected to break even by 2024.
Key downside risks: Higher-than-expected operating costs, lower-thanexpected patient visits/revenue intensity growth, and the introduction of an unfavourable drug pricing mechanism from the Ministry of Health.
