Positive prospects for local private healthcare sector

KUALA LUMPUR: There are growth prospects for the local private healthcare sector in FY19 given the long-term positive outlook on the global industry, underpinned by an ageing population, rising affluence and increasing life expectency.

AmInvestment research said the local sector also has the added catalyst of medical tourism backed by highly competitive charges and hospitalisation costs, a generally English-speaking population as well as various incentives provided by the government.

The research house added that private healthcare operators are poised for a major step-up in revenue and profit from the government-backed national health insurance system.

"We believe the scheme will force private healthcare operators to drive down their prices, but the resulting volume will support them to achieve economies of scale
with a slight margin compression. 

"We expect KPJ Healthcare to be the prime beneficiary as the group has presence in almost every state in Malaysia."

With regards to the weakening ringgit, it said Malaysia may be neagatively impacted as the price of drugs, medical supplies and equipment are demoninated in US dollar. 

However, it said a cheaper ringgit may boost Malaysia's medical tourism volume, which contributes nearly 5% to IHH's and KPJ's revenue.

AmInvestment maintains neutral on the sector but may upgrade it in the event of a surge in patients due to outbreaks of pandemic diseases, lower-than-expected start-up losses at new hospitals, value-accretive M&As and a jump in medical tourists.

It added that a downgrade may follow in the event of a significant dropout of patients from private hosputals due to economic reasons and higher-than-expected and prolonged start-up losses from new hospitals.