RHB Research said it is anticipating a “fruitful year” for the healthcare sector in general. — Bloomberg
PETALING JAYA: The healthcare sector is expected to see a stronger performance this year, with hospitals benefiting from the rebound in the number of local and foreign patient visits.
Pharmaceutical companies, on the other hand, are expected to benefit from robust drug procurement activities on both the public and private sector fronts amid softer demand in the over-the-counter (OTC) format.
As such, RHB Research said it is anticipating a “fruitful year” for the healthcare sector in general.
In the hospital segment, for instance, RHB Research noted that both KPJ Healthcare Bhd
and IHH Healthcare Bhd’s healthcare tourism (HT) segment had recovered back to pre-pandemic levels, aided by the reopening of international borders.
It expected both companies’ revenue intensity to normalise, as patients who had previously deferred their elective surgeries were expected to return for these procedures.
It maintained an “overweight” stance on the sector, with KPJ as its top sector pick.
The brokerage pointed out that its sector weighting was in part premised on the healthcare industry’s defensive nature.
“KPJ is still our sector top pick, underpinned by its robust patient growth trajectory, being less impacted by nursing staff shortages, as well as the successful disposal of its loss-making Indonesian operation in the first quarter of 2023,” it explained in its report yesterday.
“As we remain sanguine in our outlook for the healthcare service providers, we think KPJ’s greater domestic focus also grants it greater earnings stability,” it added.
In general, RHB Research said it expected KPJ’s earnings growth to be anchored by better operating efficiency, with several new hospitals nearing the end of their gestation periods; a gradual increase in contributions from the HT segment; and 3% earnings accretion to its 2023 sector earnings, due to the proposed disposal of its loss-making Indonesian business.
As for IHH Healthcare Bhd, RHB Research said it remained cautiously optimistic on the company’s outlook due to potential headwinds from ongoing nurse shortages (predominantly in its Singapore segment), and a hyperinflationary environment in Turkiye.
“Having said that, the recent normalisation of wholesale electricity prices in Turkiye post-normalisation of natural gas costs could offer some relief to its Turkyish unit, in the second half of 2023,” it said.
On pharmaceuticals, RHB Research argued that 2023 would likely be a muted year for the local drugmakers, given the high base of 2022.
“We do not expect to see panic purchases from consumers, as concerns over drug shortages (primarily OTC products) continue to dissipate.
“Nonetheless, the normalisation of raw material prices and easing supply chain bottlenecks – which should then lead to lower freight costs – should alleviate margin pressure in 2023 which, in turn, will be offset by higher electricity tariff rates and labour costs,” it added.
It maintained its “neutral” stance on Kotra Industries Bhd due to the various headwinds mentioned above.
The brokerage, however, was “mildly positive” on Duopharma Biotech Bhd, underpinned by its larger exposure to the private healthcare sector (43% of 2022 revenue), which continued to see robust patient traction.
