PETALING JAYA: Malaysia’s healthcare sector is expected to remain resilient, supported by rising demand, capacity expansion and the growing need for specialised medical services.
The sector could also see further support from Budget 2027 as the government balances higher public healthcare spending with efforts to improve affordability and attract medical tourists.
Phillip Capital Research maintained an “overweight” stance on the sector, citing resilient earnings, sustained healthcare demand and improving clinical efficiency from centres of excellence.
“We believe the sector’s premium valuation remains justified by its defensive growth profile, while valuations have moderated to one standard deviation below its three-year mean.”
Its preferred picks are IHH Healthcare Bhd
with a target price of RM11.03, and KPJ Healthcare Bhd at RM3.80, supported by capacity expansion and stronger demand for elective surgery.
For Budget 2027, Phillip Capital expects the Health Ministry (MOH) allocation to trend higher year-on-year (y-o-y), although funding is likely to remain largely focused on public healthcare.
It also expects increased allocations for medical tourism – particularly as Visit Malaysia 2026 extends into 2027 – while some funding could go towards implementing diagnosis-related groups (DRG), including support for information technology systems.
Despite potentially higher public healthcare spending, capacity constraints are expected to continue pushing patients towards private hospitals.
Public hospital beds grew at only a 1% compound annual growth rate between 2019 and 2024, compared with 3% for private hospital beds.
Healthcare providers are also facing rising costs. Malaysia’s Health Price Index increased 3% y-o-y in 2025, accelerating from 1.4% in 2024 and marking its fastest growth in three years. Health services recorded the highest inflation at 4.4%, driven largely by a 9% rise in insurance costs.
“According to MOH, rising medical costs are mainly driven by higher insurance premiums, which reflect the broader increase in healthcare costs amid factors including the rising prevalence of non-communicable diseases and greater investment in new medical technologies,” Phillip Capital said.
The research house noted that Malaysia recorded the second-highest health inflation in the region at 3%, behind Vietnam’s 5.3%, but ahead of Singapore’s 2.7%, the Philippines’ 2.6% and Indonesia’s 1.9%.
Moreover, the planned DRG payment system rollout in 2027 could improve healthcare price transparency, although Phillip Capital expects the impact on private hospital margins to remain manageable.
It said the proposed DRG fee-for-service hybrid model should facilitate the transition towards full DRG-based pricing.
Separately, MediAsas – introduced in July 2026 – could improve private healthcare affordability through standalone medical insurance and takaful plans.
“KPJ is a potential beneficiary of MediAsas, given its participation in the pilot and larger hospital footprint,” the research house said, although it expects the impact on patient volumes to be gradual due to out-of-pocket costs associated with the plans.
Meanwhile, one analyst told StarBiz he expects healthcare demand to stay steady as an ageing population and rising chronic diseases continue to drive the need for medical services.
“Budget 2027 could provide another lift for the sector, but private hospitals should remain important as public healthcare capacity takes time to catch up.”
