AMINVESTMENT Bank Bhd has upgraded its call on the private healthcare sector to overweight from neutral, as growth prospects for the sector globally are positive over the long-term, underpinned by an aging population, rising affluence and increasing life expectancy.
In a note, the bank said the local private healthcare sector has an added catalyst, namely medical tourism, backed by highly competitive charges and hospitalisation costs compared with those in developed countries.
The sector is also supported by a generally English-speaking population as well as various incentives provided by the government.
“We anticipate a contraction in earnings in 2020 in light of the Covid-19 pandemic, which will significantly impact the healthcare sector in the short term. However, we expect recovery to kick in in 2021,” it said.
The bank expects KPJ Healthcare Bhd’s earnings in the 2020 financial year (FY20) to slip by 7%, only to recover in FY21 with 11% growth in earnings; while IHH Healthcare Bhd’s earnings are expected to decline by 13% in FY20 but recover in FY21 with a 45% growth.
Medical tourists account for roughly 3% of KPJ’s revenue and 15% of IHH’s revenue.
AmInvestment said IHH’s bigger exposure to medical tourism means that it is more affected by the travel bans compared with KPJ.
“We maintain our buy call on KPJ with a lower fair value of RM1.15 from RM1.18 previously. We continue to like KPJ for its bright long-term prospects in the private healthcare sector, vast network of hospitals in Malaysia and positive long-term earnings growth led by capacity expansions.
“We upgrade our recommendation for IHH to buy from hold with a lower fair value of RM5.91 from RM6.06. We like IHH for its strong prospects in the private healthcare sector backed by rising affluence and the aging population and its position in the premium segment of the private healthcare sector,” it added. — April 7, 2020, Bernama
