PETALING JAYA: Malaysia’s healthcare sector is expected to remain a preferred defensive play in 2026, underpinned by resilient domestic demand, rising revenue intensity and stronger earnings visibility.
RHB Research has maintained an “overweight” call on the sector despite increasingly rich valuations.
“While valuations appear stretched relative to historical mean, we see this as a fundamental structural re-rating of Malaysian healthcare assets, as seen by domestic-focused players’ widening valuation gap versus regional peers,” RHB Research said in a note.
The research house named KPJ Healthcare Bhd
, LAC Med Bhd and Duopharma Biotech Bhd as its top sector picks, while downgrading IHH Healthcare Bhd to “neutral” after its recent share price outperformance and slower- than-expected recovery in Singapore operations.
“The sector continues to serve as a robust defensive shelter amid heightened global geopolitical volatility and inflationary pressure,” RHB Research said.
Within the sector, KPJ remains the preferred proxy for domestic healthcare growth. RHB raised its target price to RM3.79 from RM3.37 after lifting earnings assumptions to reflect stronger inpatient revenue intensity and a lower effective tax rate.
It said KPJ’s premium over IHH is warranted given its stronger domestic exposure, higher return on equity and better earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins.
The research house noted that KPJ’s relatively limited exposure to medical tourism – only 6% of revenue compared with 14% to 15% for larger peers – positions it as a more stable earnings play if external demand weakens.
At the same time, any rebound in foreign patient arrivals would provide additional upside from a smaller base.
It also sees KPJ benefiting from the upcoming spillover from medical and health insurance and takaful reforms, especially as standardised base-plan coverage may channel more middle-income patients into its secondary care hospital network.
Operationally, KPJ ended 2025 strongly, with fourth-quarter (4Q) revenue rising 10% year-on-year (y-o-y), supported by higher revenue intensity as inpatient billings climbed 7%.
Ebitda margin expanded to 25.8%, aided by improving contributions from six hospitals exiting gestation.
RHB Research said KPJ’s longer-term earnings profile will increasingly be shaped by its centres of excellence (COE) strategy, where it is focusing on heart and lung care, oncology, neuro and stroke, and orthopaedics.
“KPJ’s COE uplift plans provide high visibility for revenue-intensity growth, ensuring the group moves towards high-complexity, high-margin care,” the research house said.
Beyond hospitals, LAC Med is emerging as a direct beneficiary of Malaysia’s healthcare infrastructure spending cycle.
The company closed FY25 on a firm footing, with 4Q core net profit jumping fourfold quarter-on-quarter to RM10.6mil as hospitals accelerated procurement before year-end budget expiry.
RHB Research said LAC Med’s RM216.7mil outstanding order book and rising contribution from recurring maintenance contracts provide earnings visibility into 2026, especially as the group expands its higher-margin related products and services segment.
Meanwhile, Duopharma enters 2026 with stronger momentum after an earnings beat driven by robust private-sector pharmaceutical demand, better product mix and easing active pharmaceutical ingredient costs.
The report said margin support from Active Pharmaceutical Ingredient price normalisation and stronger demand under the Approved Product Purchase List tender cycle should continue to support earnings, while its dividend yield of about 4% remains attractive for defensive investors.
Sector-wide, domestic healthcare revenue rose 13% y-o-y in 4Q25, supported by stronger revenue intensity despite only modest inpatient admission growth.
Analysts said this reflects an ongoing structural shift, where hospitals are generating more revenue per patient through higher-acuity procedures, daycare treatments and specialist-led care rather than relying purely on volume growth.
However, RHB Research cautioned that current margin levels may moderate in coming quarters as wage pressures and procurement renegotiations emerge, although full-year growth momentum remains intact.
Meanwhile, an analyst with a local research house said Malaysia’s healthcare tourism industry itself is regaining momentum, whereby most foreign patients continue to come from Indonesia and other Asian countries, insulating hospital earnings from Middle East tensions.
