PETALING JAYA: The overall earnings performance for private healthcare is expected to be lacklustre this year, as patients have been delaying or opting out of non-chronic treatments to avoid Covid-19 infections.
Hence, the recovery of the private healthcare sector will be gradual.
An analyst anticipates occupancy rates and patient volumes to improve in the fourth quarter of 2020.
“However, it is difficult to determine when occupancy rates and patient numbers will return to levels seen before the local outbreak of Covid-19 and movement control order (MCO), ” he said.
AmInvestment Bank concurred, as it expects inpatient volume to begin recovering in the second half of 2020 as the MCO eases.
The research house also noted that a portion of patients would continue to defer non-essential cases for as long as possible.
“We think that net profit margins for private hospitals may decline due to lower inpatient volume, which typically commands a higher yield.
“Also, although private hospitals offer Covid-19 test kits, these are low-profit margin services, ” said AmInvestment Research.
Apart from that, private hospitals will suffer from the drop in medical tourists and strict border controls.
Last year, medical tourists accounted for less than 5% of KPJ Healthcare Bhd’s revenue.
Meanwhile, IHH Healthcare Bhd had a slightly higher sales mix share of medical tourists at a total of 15%.
A further breakdown shows IHH’s operations in Malaysia has 6% revenue contribution from medical tourists, Singapore at 26%, Turkey at 16% and India at 10%.
In addition, AmInvestment Bank highlighted that private healthcare operators in Malaysia may be negatively impacted by the weakening ringgit against the US dollar as costs of key inputs such as drugs, medical supplies and medical equipment are denominated in US dollars.
“We anticipate KPJ’s financial year 2020 (FY20) earnings to tumble 15% before rebounding by 14% in FY21.
“KPJ’s net profit margin will likely slip by 1.1 percentage points to 4.8% in FY20 before recovering to 5% in FY21.
“As for IHH, the group’s earnings are anticipated to slip 13% in FY20 before climbing by 45% in FY21, ” said AmInvestment Bank.
Kenanga Research’s pick for the healthcare sector is KPJ, as the research house expects earnings growth to come from narrower losses and earnings from hospitals built two to three years ago.
“Start-up costs from new openings will be absorbed by incremental ramp-ups from earlier openings and steady contributions from matured hospitals.
“KPJ is currently trading at 20% and 40% discounts compared to historical average of 25.5 times and regional peers of 35 times, respectively, ” it said.
In the long run, Kenanga Research expects the healthcare industry to enjoy pedestrian but stable growth, supported by growing healthcare expenditure, rising medical insurance and an ageing population demographic.
The Malaysian population aged 65 and above is projected to increase more than three-fold of the 2010 population in 2040, which will lead Malaysia into becoming an ageing population nation in 2021.
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