PETALING JAYA: Kenanga Research is positive on the longer term outlook of the healthcare sector, underpinned by the ageing population and rising affluence.
The research house said pending further development on the diagnostic-related group (DRG), it continues to remain positive, taking a view of longer-term growth prospects of the healthcare sector, on the back of the country’s ageing population, rising affluence and rising cases of chronic diseases globally.
Generally, DRG is a payment system which involves paying a fixed amount based on the complexity of a case, rather than itemising each charge or commonly known as fee-for-service payment model.
This could mean private hospitals are expected to manage their resources adequately to ensure a specific procedure is carried out within a predetermined charge. Additionally, it aims to reduce lengths of stay and improve patient outcomes.
“We expect both domestic and international patient throughput to continue to grow while revenue intensity improves, driven by a high-yield case-mix with more acute cases and ramp-up of new beds,” it added.
The research house believes the DRG-related regulatory impasse could gradually subside as stakeholders engage in more in-detail discussion and provide more clarity.
“Overhang is likely to persist at least into the second quarter of the year (2Q25),” Kenanga said.
Looking into 2025, the brokerage said IHH Healthcare Bhd
plans to add more than 4,000 beds (a growth of 30%) over the next five years across Malaysia, India, Turkiye and Europe. It expects earnings drag to gradually ease in Turkiye (the return of foreign patients), Singapore (nurse shortages resolved) and Hong Kong (economies of scale).
“We like IHH for its pricing power as the inelastic demand for private healthcare services allows providers such as IHH to pass on the higher cost amidst rising inflation, and its presence in multiple markets, namely Malaysia, Singapore, Turkiye and China,” it said.
Kenanga said it also likes KPJ Healthcare Bhd for its pricing power as a private healthcare provider and its strong market position locally with the largest network of 28 private hospitals (versus 16 of the next largest player, IHH).
However, it said the fundamentals have been priced in the recent run-up in its share price.
“Looking into 2025, it will add more than 1,500 beds, bringing total beds to 5,000 over the next five years which we have already factored into our forecasts.
“In terms of bottom-line profitability, we expect earnings to gain momentum moving into financial year 2025 (FY25) on better operational efficiencies from its cost optimisation effort and overhead absorption rate as a result of a gradual ramp-up in opening new beds,” the research firm added.
Reiterating its “overweight” stance on the healthcare sector, Kenanga said key risks to its private hospitals call include regulatory risk, risks associated with overseas operations and the lack of political will to roll out a national health insurance scheme.
