Rosy outlook for healthcare sector

RHB Research expects organic expansion and a pick-up in merger and acquisition activities to drive healthcare sector growth in 2024

PETALING JAYA: Amid some downside risks, the outlook of the healthcare sector for 2024 remains bright.

RHB Research said it is maintaining its “overweight” call on the sector given the relatively inelastic demand trends, coupled with rising health awareness, and a rapidly ageing society to anchor generic drug makers’ mid-to-longer-term prospects.

Apart from inelastic demand, the research house expects organic expansion, and a pick-up in merger and acquisition (M&A) activities to drive sector growth in 2024. Strong patient footfall could lead to a spill-over effect to the pharmaceutical players under its coverage, the brokerage noted.The disposal of Ramsay Sime Darby Healthcare to Columbia Asia Healthcare on Nov 14 marked the biggest M&A deal in 2023.

“We maintain KPJ Healthcare Bhd as our top pick, underpinned by its key strategic initiatives, encouraging growth in the healthcare tourism segment, digital transformation plan, which offers room for further margin expansion, and gradual improvements in operating efficiency as hospitals under gestation start contributing meaningfully by 2024.

“For the pharmaceutical sector, we still expect the momentum of drug restocking activities to normalise. RHB Economics sees a rosier growth outlook in 2024, underpinned by economic activities picking up in the first half of next year.

“We expect this to have a positive impact on consumer healthcare sales, as pharmaceutical products are considered discretionary spending,” the research house added.

RHB Research said the key downside risks to the sector include higher-than-expected operating costs, lower-than-expected patient visits/revenue intensity growth, and unfavourable drug pricing mechanism from the health ministry.

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