HONG Leong Investment Bank Research (HLIB) has maintained its overweight call on the healthcare sector given its defensive qualities and keeping forecasts intact at this juncture.
In a note on April 7, the research house said its top picks are Pharmaniaga Bhd with a target price (TP) of RM2.30, UEM Edgenta Bhd with a TP of RM3.56 and KPJ Healthcare Bhd with a TP of RM1.27.
“Our buy calls include Pharmaniaga, given no disruption of business operation with the five-year concession extension granted by the Ministry of Health; UEM Edgenta, for its defensive earnings profile and pivot towards healthcare support services regionally; and KPJ, with its niche in domestic geographical hospital network spread that feeds patient into its urban specialist centres,” it said.
During the Movement Control Order (MCO) period (from March 18 to April 14), the research house said hospitals, clinics and pharmacies are among the key essential services that are allowed to remain operational during this period.
“Nonetheless, we foresee short-term headwinds for some hospital players; it is understood that patients are delaying non-urgent treatments (both KPJ and IHH Healthcare Bhd have seen a significant drop for non-emergency treatments), while healthcare tourism has come to a halt with foreign tourists being banned from entering the country (healthcare tourism for KPJ and IHH in FY19: 5%-6% of total revenue).
“Overall, we gather that utilisation rates at private hospitals have, on average, fallen by more than 50% during the MCO period.”
Covid-19 has become a pandemic of epic proportions with a global case count of 1,365,330 and death rate of 76,504.
“In Malaysia, we are faced with 3,963 confirmed cases. The recently announced Prihatin stimulus offers participating opportunities for Pharmaniaga and Edgenta. While it is also the case for KPJ and IHH, this may be insufficient to offset the decline in patients delaying non-critical treatments,” it said. – April 8, 2020
