Robust outlook for healthcare sector

TA Research expects Top Glove Corp Bhd’s nitrile gloves spot prices to increase a further 10% in January 2021.

PETALING JAYA: The average selling prices (ASP) of rubber gloves are still on the upward trend and glove companies’ profits will be strong in the year ahead, said TA Research.

This trend of rising ASPs could continue to persist until May 2021, it said, reiterating its “overweight” rating on rubber glove makers.

“The daily Covid-19 case count continue to climb and the upcoming flu season in the US (December-February) is expected to support ASP and demand, ” TA Research said in a report.

It noted that all glove manufacturers have already sold out their capacity for 2021 and orders are currently building into the following year. TA Research expects Top Glove Corp Bhd’s nitrile gloves spot prices to increase a further 10% in January 2021.

“Top Glove’s spot prices for nitrile gloves are hovering at US$140-US$150 per 1,000 pieces for the period of February-May 2021, as compared to US$100 in November 2020, ” it said.

For latex gloves, it is expecting ASPs to increase by 5% every month, going forward.

“For Hartalega Holdings Bhd and Kossan Rubber Industries Bhd, which has been laggard in price adjustments, their ASPs would increase by at least 45% quarter-on-quarter (q-o-q) in the fourth quarter of 2020 and at least another 40% q-o-q in the first quarter of 2021, ” it said.

TA Research continues to be bullish on the sector, noting that the supernormal earnings are here to stay this year and in 2022.

It added that further catalysts could be in store for the sector this year which includes another record profit year in 2021 and vaccination drives which will require more PPEs.

Another catalyst is that demand is anticipated to outstrip supply again for the next two years.

On the private hospital outlook, AmBank Research said a recovery in inpatient volumes is only expected to be modest in 2021 but earnings prospects for the private hospitals are positive.

As such, it is “overweight” on the private hospitals with potential catalysts including public-private collaborations for Covid-19 vaccine distribution, improved margins as a result of cost-cutting measures and a focus on low capital expenditure and shorter gestational period projects.

“Over a longer time period, the recovery in medical tourism, improved public health awareness and an aging population would drive the next level of growth in the healthcare sector, ” AmBank Research said.

Amid these, it noted that any sustained recovery for private hospitals is contingent on a permanent reduction in Covid-19 case counts, which may only take place in the second half of the year.

Reduction can happen on mass vaccinations and quarantines can help reduce daily new cases. “Second is a recovery in regular international travel, which would restore foreign patient volumes, ” AmBank Research said.

It reiterated its “buy” call on IHH Healthcare Bhd with an unchanged fair value of RM6.25, based on a discounted cash flow valuation with a weighted average cost of capital of 7%.

IHH may see a strong rebound in both local and foreign markets while cost-streamlining measures and disposals of loss-making assets could well help to support its earnings in 2021.

As for KPJ Healthcare Bhd, AmBank Research has tagged a “hold” call with a fair value of RM1.04, based on a 2021 forward price-to-earnings ratio of 23 times.

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