PETALING JAYA: Affin Hwang Investment Bank Research (Affin Hwang) expects earnings momentum to remain resilient for the domestic healthcare sector, as hospital operators continue to post stronger-than-expected results despite persistent pricing pressure from insurers and corporate payors.
It has maintained an “overweight” call on the healthcare sector, with IHH Healthcare Bhd
as its preferred sector pick.
The research house said IHH is best positioned to sustain patient volume growth while lifting revenue intensity through brownfield expansion and higher medical tourism contribution.
In its latest sector review, Affin Hwang said aggregate earnings from healthcare companies under coverage rose 7% quarter-on-quarter and 33% year-on-year (y-o-y) in the fourth quarter of 2025, driven mainly by stronger Malaysian hospital operations.
The research house noted that both IHH and KPJ Healthcare Bhd outperformed expectations, while UMediC Group Bhd came in marginally above forecast.
A key surprise was the continued rise in average revenue per inpatient, even after both major hospital operators began giving discounts of about 12% to 13% since the second quarter of last year to manage payor pressure.
Affin Hwang said average revenue per inpatient still climbed by 9% to 11% y-o-y in the latest quarter, suggesting hospitals have retained pricing power through more complex procedures and a better service mix.
While inpatient admissions showed mixed trends, the sector remained operationally healthy. IHH’s Malaysian inpatient volume slipped 2% y-o-y, though still near record levels, while KPJ recorded a 4% increase.
Affin Hwang said the market had expected weaker quarterly profit from IHH due to discounting, but Malaysian contributions were stronger than anticipated. KPJ, meanwhile, benefited from better margins despite a flat revenue.
It expects healthcare counters to continue attracting investor attention amid rising geopolitical uncertainty, especially as defensive earnings become more valuable in volatile markets.
The research house said healthcare “may provide a more defensive exposure within the equity market” because demand for hospital services remains stable even during economic or political stress.
It added that Malaysia’s medical tourism exposure is relatively insulated because more than 60% of foreign patients come from Indonesia and other Asian markets rather than the Middle East.
For IHH, Affin Hwang reiterated a “buy” call with a target price of RM10, citing strong Malaysian operations, resilient margins and a broad regional growth pipeline.
Affin Hwang also noted that IHH’s target of achieving double-digit returns on equity by 2028 is supported by expansion across Malaysia, Singapore, India and Türkiye.
For KPJ, the research house kept a “hold” recommendation with a RM2.90 target price despite earnings beating expectations. KPJ posted RM136mil in fourth-quarter core earnings, helped by stronger margins and a 7% increase in average revenue per inpatient.
