PETALING JAYA: In-patient admissions for the healthcare sector may have finally turned the corner.
Affin Hwang Capital Research said in a report that while sectorial earnings were “in line” with expectations, the recent first quarter reporting period was a watershed for the Malaysian healthcare sector.
“In-patient admissions appear to have finally staged a comeback after three consecutive quarters of decline, with IHH HEALTHCARE BHD posting in-patient admissions growth of 10% year-on-year (yoy) and KPJ Bhd posting 4% yoy growth in the first quarter of financial year 2016 (FY16),” Affin Hwang said.
“This suggests that the drag on business volume following the goods and services tax implementation in April 2015 has started to wear off,” it added.
Affin Hwang said in-patient volume would likely resume its long-term growth trend in line with secular demand growth for private healthcare services in Malaysia.
Affin Hwang, which had an overweight stance on the sector, noted that the healthcare index had declined by 5 points year-to-date, weighed down by the pharmaceuticals and glove-making companies, while hospital operators that recorded gains of 0.5% to 0.7% were relatively resilient.
Affin Hwang said IHH’s in-patient volume in other key home markets such as in Singapore and Turkey continued to accelerate in the first quarter of 2016.
“Reversing the downtrend seen since the second half of 2014, IHH’s in-patients grew by 11% yoy in Singapore and 17% yoy in Turkey in 1Q16, marking two consecutive quarters of accelerating growth. This follows the slump in in-patient admissions seen over the past four to five quarters, driven by the commodities-led regional economic slowdown, and geopolitical instability that affected business volumes in Turkey,” it said.
As for KPJ, which has a mainly domestic exposure, has laid out plans to develop eight new hospitals and expand eight of its existing hospitals, which will add a total of 1,645 beds to its network in Malaysia.
Affin Hwang said this represented an increase of 39% to the group’s current licensed bed count at end-2015 and it implies a 5-year compounded annual growth rate of 7%, if all the projects were to come online by 2020.
While for IHH, the company has confirmed plans to add six new greenfield hospitals to its network; two in China (including Hong Kong), one in India, and three in Turkey with plans to expand three of its existing Malaysian hospitals and one of its Turkish hospital.
“These projects, which are mainly targeted for completion in 2017-18 (with the exception of two expansion and one greenfield projects), are expected to add a total capacity of 2,610 beds to IHH’s network,” it said.
Meanwhile, analysts were mostly still neutral on the sector despite their share prices having rose in the past four years in tandem with the resilient demand for healthcare.
IHH is trading at a forward price to earnings ratio (PER) of 50.77 times while KPJ is at 30 times forward PER.
After having rose for the past four years since its listing, IHH has been hovering at an established range bound price of RM6.30-RM6.60 since October 2015.
Similarly, KPJ has also risen and is now trading at the top end of its range with a potential for an upside surprise.
Analysts said gains could continue if there was expansion in their valuations and more so if growth continued to be present due to lifestyle factors and company-specific expansion plans.
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