Kenanga Research is optimistic about the healthcare sector’s long-term growth prospects.
PETALING JAYA: Kenanga Research is positive on the longer-term outlook of the healthcare sector, underpinned by the country’s ageing population and rising affluence.
The research house said pending further developments in the use of the diagnosis-related group (DRG) payment system in Malaysia, it continues to remain positive on the sector.
Kenanga Research is optimistic about the healthcare sector’s long-term growth prospects, driven by Malaysia’s ageing population, rising affluence, and the global increase in chronic diseases.
Generally, DRG is a payment system which involves paying a fixed amount based on the complexity of a case, rather than itemising each charge as is common under the fee-for-service payment model in use now.
This could mean private hospitals are expected to manage their resources adequately to ensure a specific procedure is carried out within a predetermined charge.
Additionally, it aims to reduce lengths of stay and improve patient outcomes.
“We expect both domestic and international patient throughput to continue to grow while revenue intensity improves, driven by a high-yield case mix with more acute cases and ramp-up of new beds,” the research house added.
Kenanga Research said it believes the DRG-related regulatory impasse could gradually subside as stakeholders engage in more detailed discussions and provide more clarity.
“Uncertainty is likely to persist at least into the second quarter of the year,” it said.
Looking ahead, the research house said IHH Healthcare Bhd
plans to add more than 4,000 beds (a growth of 30%) over the next five years across Malaysia, India, Turkiye and Europe.
It added that earnings were forecast to gradually improve in Turkiye, Singapore and Hong Kong, due to a rise in foreign patients, the resolution of shortages in nurses and better economies of scale.
“We like IHH for its pricing power as the inelastic demand for private healthcare services allows providers such as IHH to pass on the higher cost amid rising inflation, and its presence in Malaysia, Singapore, Turkiye and China,” the research house said.
Kenanga Research said it also likes KPJ Healthcare Bhd for its pricing power as a private healthcare provider and its strong market position locally with the largest network of 28 private hospitals compared with 16 for the next largest player, IHH.
However, the research house added that the fundamentals had already been priced in the recent run-up in KPJ Healthcare’s share price.
“Looking ahead, KPJ Healthcare will add more than 1,500 beds, bringing its total beds to 5,000 over the next five years, which we have already factored into our forecasts.
“In terms of bottom-line profitability, we expect KPJ Healthcare’s earnings to gain momentum moving into 2025 on better operational efficiencies from its cost optimisation effort and overhead absorption rate as a result of a gradual ramp-up in the addition of new beds,” the research house added.
Reiterating its “overweight” stance on the healthcare sector, Kenanga Research said key risks for its ratings of private hospitals include regulatory risk, risks associated with overseas operations and the lack of political will to roll out a national health insurance scheme.
