Mixed outlook for healthcare

Expansion: A KPJ medical facility. KPJ Healthcare Bhd, the largest private healthcare services provider in Malaysia, will be increasing its capacity in 2018, amid expansion by its competitors. The group’s five new hospitals are likely to commence operations this year. In addition, the expansion of its four existing hospitals is expected to be completed within the first half of the year. -

PRIVATE healthcare is a sure bet sector, as long as the population is growing and human life expectancy improves.

However, moving into 2018, analysts are rather mixed on the sector.

On one hand, resilient economic growth this year should improve healthcare affordability.

In addition, with more initiatives from the Government to strengthen Malaysia’s medical tourism, the overall healthcare sector could see higher patient traffic.

On the other hand, as an influx of new hospitals increases competition within the healthcare sector, this could affect the earnings prospects of healthcare companies.

Valuation-wise, healthcare stocks on Bursa Malaysia are currently trading at expensive levels.

Kenanga Research, which has maintained its “underweight” view on the sector, believes that earnings growth prospect is expected to be dull, moving forward.

However, AllianceDBS Research is sanguine on the healthcare sector, mainly due to its expectation of stronger private healthcare consumption this year, following a few years of slowdown.

KPJ Healthcare Bhd, the largest private healthcare services provider in Malaysia, will be increasing its capacity in 2018, amid expansion by its competitors.

The group’s five new hospitals are likely to commence operations this year.

In addition, the expansion of its four existing hospitals is expected to be completed within the first half of the year.

According to TA Securities Research, KPJ’s capacity expansion will progressively raise the group’s number of beds by nearly 23% or 716 beds, from 3,052 beds currently.

“We are hopeful for the group to achieve greater traction in the financial year of 2018 (FY18).

“Barring delays, we view upside to patient traffic from the commencement of five new hospitals and the completion of expansion of four existing hospitals.

“Following the commencement of KPJ Perlis (one of the five new hospitals), the group will be a step closer towards completing its footprint across Malaysia, leaving Melaka and Terengganu as the only states it has yet to penetrate.

“Furthermore, we imagine that the hospital could garner encouraging reception in view that it will be the first private hospital in Perlis,” it says in a published note.

KPJ Perlis, which was slated to commence by end-2017, is still waiting for the clearance from the Health Ministry.

TA Securities Research has maintained its “buy” call on KPJ, but raised its target price to RM1.12 from RM1.09 previously.

The research house projects KPJ’s patient traffic to at least sustain this year.

This is mainly because KPJ’s tie-ups with its corporate clients are largely intact, which account for 60% to 70% of its overall revenue.

As of the first nine month of FY17 ended Sept 30 (9M17), the number of inpatients that sought treatment at KPJ’s hospitals was up by 1.6% year-on-year (y-o-y). However, outpatient traffic has skid by 0.3% y-o-y.