PETALING JAYA: Analysts are generally mixed on the healthcare sector.
Hong Leong Investment Bank (HLIB) Research has downgraded the healthcare sector rating from “overweight” to “neutral”, reflecting its view that the initial public offering-led re-rating theme has largely run its course.
In a note, the research house said this was alongside its recent downgrade of IHH Healthcare Bhd
from a “buy” to “hold”, following weaker-than-expected performance from its Singapore operations.
However, HLIB Research remained positive on Sunway Healthcare Holdings Bhd supported by its differentiated business model and strong clinical credentials.
“We also see earnings entering an asset milking stage, while its relatively lower foreign ownership (versus IHH as a FBM KLCI constituent) provides scope for further foreign fund accumulation,” it said.
The research house said based on its recent discussion with the Malaysia Healthcare Travel Council (MHTC), first-quarter (1Q26) healthcare tourism revenue was broadly in line with the full-year target of RM3.8bil (13.4% year-on-year).
However, MHTC acknowledged that growth in 2Q26 may have been weaker than initially expected due to disruptions arising from the Iran war, which resulted in higher airfares and flight cancellations across parts of the Middle East.
“Nevertheless, MHTC has maintained its 2026 healthcare tourism revenue target pending the release of 2Q26 data,” it noted.
It believes non-discretionary treatments, particularly tertiary and complex hospital services, should remain relatively resilient compared with discretionary procedures such as health screening (the primary “hook” for new inpatients) and in-vitro fertilisation treatments, where patients are more likely to defer travel amid higher costs.
Separately, it believes IHH’s overseas operations are also exposed to the recent geopolitical tensions in the Middle East.
HLIB Research said going into the second half of next year, it remained cautiously optimistic on a sequential recovery, underpinned by MHTC’s efforts to penetrate new source markets and improving geopolitical conditions following progress in US-Iran negotiations, which have contributed to around a 30% decline in Brent crude oil prices from their peak, which has, in turn, eased jet fuel prices as well.
Meanwhile, UOB Kay Hian Research in its report said it had a “market weight” rating on the healthcare sector.
“Hospital revenue is expected to grow 12.4% and 9.8% in 2026 and 2027, respectively, with margin uplift allowing earnings to outpace revenue,” it said.
However, the research house cautioned that the upside is tempered by hospital valuations trading above the historical mean at 33.9 times price earnings multiples versus 32.7 times, potential spillovers from a prolonged Middle East conflict, and weaker Indonesian medical tourism amid the rupiah depreciation.
It said despite the ongoing US-Iran peace deal negotiations, Malaysian equities are likely to kick off the second half of the year defensively, amid expectations of the 16th general election (in 4Q26) and a “higher-for-longer” cost inflationary impact from the Iran conflict.
However, the research house expects slowing domestic consumption and corporate earnings momentum as the economy confronts a secondary wider inflationary impact.
Meanwhile, it noted that the Middle East conflict has raised concerns over pharmaceutical cost inflation, but the near-term impact on private hospitals appears contained.
