PETALING JAYA: With the roll-out of the Covid-19 vaccines on the horizon, earnings prospects for the healthcare sector are looking positive not just for the short-term but also for the longer period on higher demand.
Although recovery in inpatient volume is only expected to be modest in 2021, AmInvestment Bank said earnings are set to pick up due to potential public-private collaborations, improved margins as a result of cost-cutting measures and a focus on low capex and 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, it added.
So far, the government has procured Pfizer, AstraZeneca and COVAX-sourced vaccines for 40% of the population. It is in negotiations with CanSino, Sinovac (China) and the Gamaleya National Centre (Russia) to provide vaccines for another 40% of the population.
Malaysia is expected to receive its first batch of one million doses of the Pfizer Inc/BioNTech Covid-19 vaccine in February 2021 and AmInvestment believed that the first batch of vaccines would be administered in Q2 or Q3 this year.
The vaccine supply chain is expected to benefit a number of companies including those not directly involved in healthcare.
“The first step of Covid-19 supply and distribution chain is transportation companies. While Changi Airport is expected to be the regional hub for the distribution of Covid-19 vaccines from global suppliers, we reckon that KLIA will be the local hub for the vaccines’ distribution in Malaysia.
“Local transporters will then take over and deliver the vaccines to distribution centres, ” said AmInvestment.
The other group of beneficiaries are the fill-finish companies.
While a deal concerning Covid-19 vaccine’s fill-finish process is yet to materialise, AmInvestment highlighted that Duopharma Biotech Bhd and Pharmaniaga Bhd are favoured by the government to undertake these processes.
Pharmaniaga has signed an agreement with Serum Institute of India to perform fill and finish processes for pneumococcal vaccines.
“We think that Pharmaniaga would be the main distributor of the Covid-19 vaccine to the local hospitals. However, we reckon that Pharmaniaga may appoint other companies to help distribute the vaccine all over Malaysia.
“In this space, we believe that Apex Healthcare Bhd would benefit due to its solid distribution network and excellent past track record of distributing vaccines and other pharmaceutical products, ” it said.
AmInvestment opined that private hospitals and clinics would help in Malaysia’s Covid-19 vaccination programme. This is due to the cold chain facility, logistical and manpower limitations of the public sector.
“We think that private healthcare providers may receive a fixed fee from the government in return for their service, though we doubt that operating profit margins would be high due to this being a national service, ” it added.
Of the healthcare companies under its coverage, AmInvestment has a “hold” call on KPJ Healthcare Bhd at a fair value of RM1.04 and a “buy” recommendation on IHH Healthcare Bhd with a fair value of RM6.25.
It favoured IHH for its strong recovery potential in Q4FY20 and FY21, its expansionary outlook, effective cost cutting and capital efficiency methods and its position in the premium segment of the private healthcare sector, translating to high EBITDA margins of over 20%.
Meanwhile, it noted that KPJ’s future earnings growth is capped by the lack of new local hospital openings and the underwhelming performance of its foreign operations.
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