KUALA LUMPUR: AmInvestment Research has upgraded its recommendation for the private healthcare sector to Overweight from Neutral with Buy calls for KPJ Healthcare and IHH Healthcare.
It said on Tuesday growth prospects for the sector globally are positive over the long term, underpinned by an aging population, rising affluence and increasing life expectancy.
“The local private healthcare sector has an added catalyst, i.e. medical tourism backed by its highly competitive charges and hospitalisation costs (vs. those in developed countries), a generally English-speaking population as well as various incentives provided by the government, ” it said.
However, in the short term, AmInvest Research anticipates a contraction in earnings in 2020 due to the Covid-19 pandemic which will significantly impact the healthcare sector. Recovery is expected to kick in in 2021.
“We expect KPJ’s earnings in FY20F to contract slip by 7% but expecting recovery in FY21F with 11% growth in earnings. In terms of net margin, we believe it will contract slid by roughly 0.7% to 5.1% in FY20F.
“As for IHH, we expect earnings in FY20F to contract decline by 13% but expecting recovery in FY21F with 45% growth in earnings. In terms of net margin, we believe it will contract by 1.0% in FY20F to 5.2%.
“We maintain our Buy call on KPJ Healthcare with a lower fair value of RM1.15 (RM1.18 previously) based on price-to-earnings (PE) of 23 times FY21F EPS.
“We upgrade our recommendation for IHH Healthcare to Buy from Hold with a lower FV of RM5.91 (from RM6.06), ” it said.
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