PETALING JAYA: The recovery of the healthcare sector in Malaysia is expected to gain further traction over the medium term amid further easing of Covid-19 restrictions.
Hospital service providers, for instance, are witnessing an increase in the number of patients, particularly tourist patients, following the reopening of international borders.
Pharmaceutical companies, on the other hand, are seeing an improvement in margins as supply chain normalises in a post-Covid economy.
Given the sanguine outlook, RHB Research maintained its “overweight” call on the healthcare sector.
“The healthcare sector continued to see encouraging growth in the number of patients in the third quarter of 2022. Post further lifting of restrictions related to Covid-19, the sector should benefit from a spike in local and foreign patient visits,” the brokerage explained.
“Moreover, the spillover effect from public and private-sector procurement of medication and treatments should continue to benefit the pharmaceutical players under our coverage, namely, Duopharma Biotech Bhd (DBB) and Kotra Industries Bhd,” it added.
During the quarter in review, KPJ Healthcare Bhd recorded an increase of 13.5% quarter-on-quarter (q-o-q) in the number of patients, while IHH Healthcare Bhd registered a growth of 3.3% q-o-q.
RHB Research noted KPJ and IHH continued to record a strong recovery in their respective healthcare tourist numbers, with both seeing healthcare-tourist-related revenue recovering near pre-pandemic levels to 4% of their respective total group revenues, as compared to 5.5% and 5% prior to the pandemic.
The brokerage said its top sector pick is KPJ, citing the group’s robust patient growth trajectory. It noted that KPJ was not affected by nursing staff shortages, and it had a potentially earnings-accretive disposal of an overseas entity by 2023.
“While we remain sanguine on the recovery prospects of the healthcare service providers, we also think that KPJ’s greater domestic focus accords it greater earnings stability,” RHB Research said.
“For the pharmaceutical sector, we expect a normalisation of raw material prices, easing supply chain bottlenecks leading to lower freight costs, which should alleviate their margin pressures in 2023,” it added, noting DBB and Kotra relied on cross-border access to facilitate raw material procurement and export sales.
On companies’ results for the nine months to September 2022, RHB Research noted IHH’s earnings fell below expectations, being hampered by headwinds ranging from the weakening Turkyish lira, escalating operating costs (predominantly in Turkiye), and the nursing staff shortage in Singapore.
KPJ’s core earnings more than doubled, on ongoing cost optimisation strategies and a pick-up in its Malaysia bed occupancy rate, which boosted its operating efficiency.
RHB Research said DBB’s results beat its expectations as drug restocking from the private and public sectors pointed to robust demand, albeit offset by normalised sales from the consumer healthcare segment.
Meanwhile, Kotra’s results for the first quarter ended Sept 30, 2022, were boosted by surging demand for over-the-counter medicine, as well as a pick-up in export sales.