Global healthcare expenditure is projected to expand, reaching US$10 trillion by 2026 owing to rising affluence and the ageing population as local medical service providers experience growth, especially in the field of medical tourism.
Both the domestic and international patient throughput will continue to grow while revenue intensity improves, driven by a high-yield case-mix with more acute cases, according to Kenanga Investment Bank Berhad.
The demand for healthcare, a basic necessity, is inelastic despite high inflation.
Another key driver is rising chronic diseases across the globe. According to the World Health Organisation, almost half of the global healthcare expenditures (US$4 trillion) will be spent on three leading causes of death, namely cardiovascular diseases, cancer and respiratory diseases.
Analysts have reiterated an OVERWEIGHT call for the healthcare sector.
The ramp-up of new beds will boost operational efficiency, cost optimisation and overhead absorption. Similarly, robust sales of pharmaceuticals and over-the-counter drugs can be expected given the increased health awareness among consumers.
Analysts favour IHH Healthcare Berhad as the sector’s top pick and have awarded a target price of RM7.73 for the medical group, citing IHH’s pricing power given the inelastic nature of medical demand and the group’s presence in multiple markets such as Malaysia, Singapore, Türkiye and possibly China. IHH has greater exposure to medical tourism by its vast overseas market.
As of 11:33am on Wednesday, IHH’s counter is trading at RM7.28.
In 2024, IHH is expected to achieve a bed occupancy rate of 65%−73% (versus an estimated average of 65% in 2023) for its hospitals in Malaysia, Singapore, India and Türkiye.
Additionally, its recent acquisition of Island Hospital, which is expected to finalise by year-end, will likely be accretive to operating margins. The deal is viewed as positive because Island Hospital has a commanding EBITDA margin of 30% with a profitable bottom line. The acquisition is a strategic fit to expand IHH’s complementary services in Penang, which is a location integral to IHH’s cluster strategy.
