PETALING JAYA: The healthcare sector is expected to remain resilient through 2026 despite mounting inflationary pressures, geopolitical uncertainties and the prospect of upcoming elections, supported by the defensive nature of healthcare demand and the pricing power of hospital operators.
The sector’s earnings momentum is forecast to strengthen in the coming quarters, as structural demand trends remain intact and management guidance for next year stays unchanged.
RHB Research maintained its “overweight” rating on the sector, citing the ability of hospital operators to pass on operating expenditure inflation with limited impact on demand.
The brokerage’s recommendation is also consistent with its core defensive investment stance for Malaysia. “The broader macroeconomic backdrop is becoming increasingly clouded by inflationary risks, geopolitical volatility and prospects of the upcoming elections.”
Despite the challenging environment, it believes healthcare stocks offer an attractive defensive proposition. “We believe the sector’s ability for hospital operators to pass on operating expenditure inflation with limited impact on demand deserves greater recognition,” RHB Research said.
“Our sector ‘overweight’ call remains anchored by the inherent inelasticity of clinical demand, which continues to provide a defensive shelter against potential domestic inflationary pressures and broader geopolitical volatility,” it added.
RHB Research said it viewed the share price retracement of stocks under its coverage from their peak as an attractive accumulation opportunity.
According to the research house, first-quarter 2026 (1Q26) results were largely in line with expectations, with seasonal factors weighing on sequential performance.
The brokerage noted that the timing of the Chinese New Year and Hari Raya Aidilfitri celebrations contributed to softer occupancy rates during the quarter.
Based on its domestic healthcare tracker covering IHH Healthcare Bhd
and Sunway Healthcare Group Bhd, 1Q26 sector revenue from domestic operations grew 11% year-on-year, although it declined 7% quarter-on-quarter.
Growth was driven by a 2% increase in inpatient admissions and a 6% to 12% rise in revenue intensity.
Aggregate earnings before interest, taxes, depreciation and amortisation margin normalised to 23.3% from the previous quarter’s peak of 27.4%, while still expanding by 0.8 percentage points from a year earlier, reflecting continued cost discipline and structural revenue strength.
Among the companies under its coverage, Duopharma Biotech Bhd posted earnings above expectations, while IHH and LAC Med Bhd delivered results broadly in line with forecasts.
Following the quarterly announcements, RHB Research said earnings revisions were “minor and housekeeping in nature”, resulting in no changes to its stock recommendations. The brokerage’s top sector picks are LAC Med and Duopharma Biotech.
RHB Research retained its “buy” recommendation on Duopharma Biotech, but lowered its target price to RM1.56 from a higher level previously, after assigning a greater risk premium to uncertainty surrounding delays to the Approved Product Purchase List tender.
It also highlighted regulatory changes, weaker-than-expected patient volumes and revenue intensity growth as key sector risks, while noting that a weaker US dollar could create foreign-exchange translation headwinds for IHH, but reduce imported active pharmaceutical ingredient costs for Duopharma Biotech.
Meanwhile, one analyst told StarBiz that the healthcare sector continues to stand out as one of the more dependable areas of the Malaysian equity market, supported by steady demand fundamentals and operators’ ability to manage cost pressures through pricing and efficiency measures.
“While external uncertainties remain elevated, healthcare providers are generally better positioned than many cyclical sectors to sustain earnings growth,” he explained.
“This makes the sector an attractive component of a diversified portfolio,” he added.
