BIMB Securities Research said while the full implementation of the diagnosis-related group reimbursement framework is a medium-term uncertainty, a full rollout in 2026 is unlikely.
PETALING JAYA: BIMB Securities Research says valuations of healthcare stocks on Bursa Malaysia are close to historical average-to-premium multiples, reflecting the sector’s strong earnings visibility, but further upside is restrained by medical inflation, labour cost escalation and regulatory uncertainty.
The research house, which has a “neutral” call on the sector, expects the segment to remain resilient in 2026, supported by normalised elective procedures, rising medical tourism flows and sustained demographic ageing.
It noted that elective surgeries have largely stabilised at 90% to 95% of pre-Covid-19 levels, while medical tourism continues to strengthen, led by Indonesian patients (more than 60% share), supported by Malaysia’s competitive pricing and specialist depth.
Healthcare demand will be further supported by a rising proportion of seniors (65 years or more), who are expected to surpass 15% of the population by 2030, anchoring long-term demand for chronic disease management and rehabilitative care.
“Collectively, these drivers reinforce a steady volume outlook heading into 2026,” BIMB Securities Research stated in its latest healthcare sector report.
The research outfit forecasts sector-wide medical inflation to remain high at 4% to 5% in 2026, driven by wage adjustments, global drug cost escalation and higher depreciation from capacity additions.
Private healthcare operators, however, retain some pricing power, particularly for private rooms and high-acuity procedures.
It added that revenue intensity uplift remains largely mix-driven rather than price-led, ensuring sustainability despite payer sensitivity.
Rising foreign patient volumes offer pricing flexibility, especially for premium services, supporting stable operating margins for major operators like IHH Healthcare Bhd
and KPJ Healthcare Bhd.
BIMB Securities Research said while the full implementation of the diagnosis-related group reimbursement framework is a medium-term uncertainty, a full rollout in 2026 is unlikely.
When introduced, it could pose a risk to inpatient margins, particularly for providers with heavy reliance on corporate and insurance payors.
Meanwhile, digital transformation continues to be an important efficiency enabler.
Gradual adoption is expected to yield incremental margin benefits in financial year 2026 (FY26) through improved throughput and lower administrative overheads.
From a stock selection basis, BIMB Securities Research has a “hold” call on both IHH and KPJ, with target prices of RM8.50 and RM2.77 per share, respectively.
It noted that IHH’s medium-term growth remains intact but is capped by near-term margin pressures, while KPJ’s valuation fairly reflects its operational improvements.
The research house highlighted that KPJ’s revenue intensity continues to improve, driven by case-mix enhancement in orthopedics, cardiology and oncology, as well as digitalisation benefits across shared services and procurement.
“While inpatient volumes remain sensitive to insurer restrictions, outpatient demand has continued to expand, helping sustain top-line growth.
“Overall productivity gains are expected to cushion labour and drug cost pressures in FY26,” it added.
BIMB Securities Research said IHH’s operating momentum is expected to remain firm in 2026, underpinned by mixed uplifts, higher daycare volumes and continued optimisation across its core markets.
In addition, IHH’s ongoing expansion in India could offer rerating potential over the longer term, as it focuses on long-term capacity build-out rather than near-term profit accretion.
Furthermore, contribution from Fortis Healthcare (31% owned by IHH) to the group is now equity-accounted rather than consolidated.
