Rise in earnings expected for healthcare sector

Kenanga Research also anticipates a recovery in medical tourism to continue throughout 2023, driven by the return of elective surgeries over the immediate term. — Bloomberg

PETALING JAYA: Private healthcare providers are expected to see a pick up in earnings from an increase of both domestic and international patient throughputs following the reopening of economic borders.

Besides this, Kenanga Research also anticipates a recovery in medical tourism to continue throughout 2023, driven by the return of elective surgeries over the immediate term.

In a note to clients, the research firm reiterated its “overweight” call on the healthcare sector, backed by earnings catalysts from three areas of healthcare under its coverage.

“We like private healthcare providers given the inelastic demand and growing global healthcare expenditure, projected to reach US$10 trillion (RM44 trillion) by 2026,” said Kenanga Research.

This is an increase from US$8.4 trillion (RM37 trillion) in 2022, representing a compound annual growth (CAGR) rate of 3.5% during the five-year period.

“Specifically, the World Health Organisation reported that almost half of the global healthcare expenditure will be spent on three leading causes of death: cardiovascular diseases, cancer, and respiratory diseases,” it added.

On the back of this, Kenanga Research said it expects IHH Healthcare Bhd’s 2023 revenue per inpatient growth to come in at 10% to 15% versus 18% in 2022, due to low base effect in 2021.

Meanwhile, it foresees inpatient throughput growth of 10% to 15% (versus 10% in 2022) and bed occupancy rate (BOR) of 60% to 73% (versus 56% to 70%% in 2022) for IHH hospitals in Malaysia, Singapore, India and Turkey.

“We believe the key growth factor for its inpatient throughput and BOR will be the return of elective surgeries and medical travel, the addition of new beds (previously constrained by staff shortages) and the first full-year contribution from the Acibadem Atasehir hospital,” said Kenanga Research.

The research firm also likes IHH for its pricing power as the inelastic demand for private healthcare service allows providers such as IHH to pass on the higher cost amidst rising inflation and its presence in multiple markets.

As for KPJ Healthcare Bhd, it expects the group’s patient throughput to grow 14% and BOR of 66% to be driven by recovery in demand for its services.

It noted KPJ has a strong market position locally with the largest network of 28 private hospitals as compared to IHH’s 16 hospitals.

It sees a potential re-rating for KPJ following the divestment of its loss-making Indonesian operations, and when its newer hospitals turning earnings before interest, taxes, depreciation, and amortisation positive post the gestation period.

In the pharmaceuticals and over-the-counter (OTC) drugs segment, it expects the Malaysian market to grow at a CAGR of 6% to an estimated US$715mil or RM3.2bil by 2027 as consumers take a more proactive stance towards their health due to the Covid-19 pandemic.

This will augur well for players such as Kotra Industries Bhd and Nova Wellness Group Bhd.

Elsewhere, Kenanga Research expects the earnings growth of Malaysian Genomics Resource Centre Bhd (MGRC) to gather momentum in the second half of 2023, driven by maiden contributions from Thailand and the Middle East as the company ramps up its distribution network and footprint overseas for its biopharmaceutical products.

It notes that MGRC had registered its maiden contributions from Thailand and the Middle East in the first quarter of financial year 2023 and expects orders to continue in coming quarters.

“We like MGRC for its exclusive rights to deliver such immunotherapy treatment in the region under a long-term licensing agreement with reputable principals. In addition, it is also the leading provider of genetic sequencing and analysis in South-East Asia.”

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