PETALING JAYA: The healthcare and pharmaceutical sectors are expected to sustain their growth momentum through the reopening of international borders, higher procurement activities and better export sales, says RHB Research.
The research house noted the healthcare sector continues to see an rise in patient growth rate for the fourth quarter of 2022 (4Q22), with KPJ Healthcare Bhd (KPJ) and IHH Healthcare Bhd (IHH) delivering an increase of 2.3% and 33.1% year-on-year (y-o-y) respectively.
“This was underpinned by the increasing local and foreign patients’ visits following the lifting of movement restriction order,” said RHB Research in a report yesterday.
KPJ’s core profit for the financial year ended Dec 31, 2022 (FY22) was nearly 20% above its estimates with net profits for 4Q22 surging by 291% y-o-y to RM72.1mil.
“The group’s ongoing cost optimisation strategies and the pick-up in Malaysia’s bed occupancy rate (increased by 63%) led to improved operating efficiency,” said the research house.
However, RHB Research stated higher operating costs, particularly in Turkiye, as well as nursing staff shortage in Singapore has caused IHH’s FY22 results to fall below its expectations.
“IHH had a lower revenue intensity as a result of higher number of elective cases (commands lower average selling prices or ASP), whereas KPJ’s revenue intensity rose slightly due to higher number of surgeries conducted,” said the research house.
Going forward, RHB Research projects that patients who previously deferred their procedures will return for elective surgeries, which will normalise the sector’s revenue intensity.
The research outfit’s top pick for the healthcare industry is KPJ, underpinned by robust patient growth trajectory, less impact from nurses’ shortages and the disposal of its loss-making Indonesian unit in 1Q23.
“Last year ended with KPJ and IHH’s healthcare tourism divisions recovering to pre-pandemic levels – aided by the reopening of international borders. Moving forward, as we remain sanguine on healthcare service providers’ outlook, we believe KPJ’s greater domestic focus offers better earnings stability,” said RHB Research.
On the other hand, pharmaceutical players like Duopharma Biotech Bhd (DBB) and Kotra Industries Bhd (Kotra) were beneficiaries of stronger procurement activities from the public and private sectors and higher export sales in 2022.
“DBB’s FY22 results beat our expectations, mainly due to an increase in export sales, and robust demand for drug restocking activities from the private and public sectors.
“Kotra’s 2Q23 results were boosted by sustained demand for prescription drugs as well as the notable pick-up in export sales,” said the research house.
Both DBB and Kotra’s improved margin performances, attributable to the drugmaker’s timely ASP adjustment, mitigated the price spike for active pharmaceutical ingredients late last year, added RHB Research.
“In the quarters ahead, we expect the drug restocking momentum, especially with consumer healthcare and over-the-counter products, for the pharmaceutical sector to normalise in the second half of this year as concerns regarding drug shortage dissipate,” said the research house.
RHB Research maintained an “overweight” call for all the four counters.
The research house’s also maintained a “buy” call for KPJ with a target price of RM1.50.