KUALA LUMPUR: Earnings of the private healthcare operators are expected to display further improvements from fourth quarter (Q4) 2017 onwards, said MIDF Research.
In a report to investors today, MIDF said it expects revenue and earnings growth to be mainly driven by organic growth from existing hospitals as well as hospitals that were newly opened back in 2015 and 2016.
“In addition, we are also expecting the opening of new specialisation wards in recently opened hospitals will contribute positively to the operators’ earnings as well.
“Furthermore, as the contribution from newly opened hospitals grows, it will offset the high operating expenditures associated with the opening of the new hospitals,” it said.
MIDF said aside from the organic growth from existing and new hospitals, earnings are expected to pick up again from Q4 2017 onwards now that most healthcare operators have passed the capital expenditure (capex)-intensive period due to the aggressive expansion plans undertaken for the past two years.
It said this will leave plenty of room for earnings recovery as it will potentially free up working capital used to finance the expansions.
“Major hospital operators under our coverage have indicated that at most, one new greenfield hospitals will be added each year as compared to two greenfield hospitals previously,” it said.
Aside from that, MIDF said the only capex these operators will incur will only be on the expansion of existing hospitals.
MIDF said it expects the demand for healthcare will continue to be resilient.
It said this is evident from the recent earnings announcement where both IHH Healthcare Bhd and KPJ Healthcare Bhd managed to record growth in inpatient admissions across their home markets.
“Going forward, we opine that the demographic factors such as increase in ageing population and increase in lifestyle diseases will continue to drive the adoption of private healthcare services.
“In addition, with ringgit at its current level, it will be attractive for medical tourism traveler to seek medical treatments in Malaysia as oppose to its neighbouring countries,” it said.
MIDF has reiterated its positive stance on the sector as it expects demand for healthcare services to remain robust for the remainder of 2017.
MIDF said the positive stance is premised on strong demand for quality healthcare and lack of public healthcare amenities to cater for patients especially in the urban areas.
IHH remained as its top pick for the sector with a “buy” call and target price of RM7.06, based on the group’s geographically-diversified revenue base, robust balance sheet and strategic expansion plans.