KUALA LUMPUR: RHB research expects the private healthcare sector's earnings growth to persist into 2024.
The investment bank said this is underpinned by relatively inelastic demand, rising health awareness among consumers, and a rapidly ageing society anchoring generic drugmakers' mid- to long-term growth prospects.
"While the healthcare facilities and services sector has defensive attributes, we continue to recommend that investors lean towards domestic-centric names, as these should offer better earnings stability," it said in a note.
The bank-backed research firm has maintained an "Overweight" rating on the healthcare facilities and services sector, supported by relatively inelastic demand trends, coupled with rising health awareness among consumers as well as the trend of an ageing society.
KPJ Healthcare Bhd remains its top pick, premised on Its strategic rebranding and upscaling exercise, a gradual pick-up in the health tourism (HT) segment, and improvement in operating efficiency as its hospitals under gestation are expected to break even by 2024.
"The key focus for KPJ in 2024 will involve driving efficiency (primarily for hospitals in gestation periods) and, to a greater extent, unlock its potential value – with an ultimate objective of bridging the gap between its valuation and that of IHH Healthcare Bhd (IHH). "As for IHH, we expect it to continue focusing on improving the number of beds, as outlined by its new five-year bed count target of 3,800 units. "Given the hyperinflation situation currently in Turkey, we believe that IHH will continue to diversify its revenue towards patients paying in ex-Turkish lira denominations, while adopting timely price adjustments to mitigate any cost pressures," it noted.
On the outlook for HT segment in Malaysia, RHB Research said it remains positive, thanks to the availability of world-class facilities and services that come at competitive prices, on top of the easy access to such healthcare and communication with medical professionals. Within the pharmaceutical sub-sector, the bank expects the improved consumer sentiment to bode well for the demand for over-the-counter products.
It added that the pick-up in export momentum is expected to benefit Duopharma Biotech Bhd and Kotra Industries Bhd, as revenue from their overseas markets accounts for six per cent and 45 per cent of their turnover.
Moving forward, RHB Research noted that key downside risks for the healthcare sector include higher-than-expected operating costs and lower-than-expected patient visits/revenue.
Additionally, it said the introduction of an unfavourable drug pricing mechanism by the Ministry of Health poses a risk.