KUALA LUMPUR: AmInvestment Research is maintaining its overweight call on the healthcare sector with IHH Healthcare as its top sector pick with an unchanged fair value of RM6.26.
It said on Wednesday the optimism was based on three main factors. Firstly, recovering patient volumes as pandemic restrictions are loosen while secondly, there is significant room for additional hospital beds and hence growth potential, as evidenced by a low hospital bed-to-total population ratio (BPR).
Thirdly, with the exception of Sunway, there is a shift in focus from greenfield hospital development to quicker-yielding, lower-cost alternatives.
AmInvest said its valuation for IHH was based on a discounted chashflow with a WACC of 7.0%.
“On the local front, we view its push to develop centres of excellence, outreach attempts to the middle-class population and cluster-strategy benefits as positive drivers to growth.
“The international outlook is also positive, given the strong recovery in patient volume and encouraging performance of Gleneagles Hong Kong, ” it said.
The research house also said bed occupancy rates (BOR) are set to improve through 2021F. The average pre-pandemic BOR for private institutions is 70%.
“While we believe that a return to such values within 2021F is improbable, significant improvement is expected as restrictions are expected to loosen gradually, ” it said.
AmInvest said this was based on positive vaccination effects and the government’s ability to contain Covid-19 cases at a manageable level.
“Our projections are based on past BOR values during the Movement Control Order, Recovery MCO and conditional CMCO periods, ” it said.
It also said Malaysia has significant room for additional hospital beds. In 2019, Malaysia’s BPR stands at 1.98 beds per 1,000 residents, growing at a rate of roughly 1.1% per annum in the past five years.
In contrast, OECD health statistics 2019 states that average BPR for OECD countries stands at a much higher 4.70 in 2017.