RHB Research has an “overweight” call on the private healthcare sector.
PETALING JAYA: The private healthcare sector is expected to record softer earnings in the first quarter of this year (1Q25) on a quarter-on-quarter basis due to the fasting month, says RHB Research.
However, future growth for the sector remains promising.
This is predicated on organic expansion strategies, the growing case numbers for non-communicable diseases and an ageing population.
The research house said the proposed implementation of the Diagnosis-Related Group (DRG) pricing mechanism still requires extensive study and engagement with various stakeholders.
This is given the complexity of each medical procedure and its underlying costs.
DRG is a system to classify hospital cases into groups expected to have similar hospital-resource use in terms of cost. Patients within each category are similar clinically and are expected to use the same level of hospital resources.
RHB Research has an “overweight” call on the sector.
The key downside risks cited to its call include higher-than-expected operating costs, lower-than-than-expected patient numbers and revenue intensity growth, and regulatory risks.
The research house said, although the regulatory issues around the DRG pricing mechanism could affect investor sentiment in the near term, it believes investors’ appetite for good healthcare assets remains intact due to the permanent, structural shifts driven by an ageing population.
The research house switched its top pick in the sector to KPJ Healthcare Bhd
(KPJ) as it favours domestic-focused names since healthcare players with significant overseas exposure may still face headwinds, predominantly from inflationary and geopolitical uncertainty.
It retained its “buy” call with target price of RM3.08 a share for KPJ.
KPJ is supported by its encouraging growth from hospitals that continue to grow, better earnings quality, and strategic initiatives to upscale existing hospitals.
Its key growth drivers should be supported by growing contributions from health tourism, as well as better operating efficiency from maturing hospitals.
The research house said growth for IHH Healthcare Bhd, with a target price of RM8.70, will primarily hinge on greenfield and brownfield expansion in meeting its expansion target of 4,000 new beds by 2028.
IHH’s current expansion plan includes Gleneagles Sarawak with 200 beds and target completion date by 2028, and the expansion of Mount Elizabeth Hospital in Singapore with 56 single rooms and a target completion in the second half of this year.
Moving forward, IHH will continue to drive high-value, cost-effective care for patients by improving clinical outcomes and the patient experience.
The research house said the favourable secular trends across its key markets are expected to provide strong tailwinds for sustainable growth
Pharmaceutical company, Duopharma Biotech Bhd, with a target price RM1.45, should continue to see robust sales improvement in the first half of this year.
This is expected to be underpinned by sustained sales due to higher government allocations for the Health Ministry.
Duopharma’s margins should improve sequentially, aided by the normalisation of prices for active pharmaceutical ingredients used in its products.
