KUCHING: The healthcare sector is going strong amid robust demand for private healthcare, rich valuations and contribution from recently-opened hospitals.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), despite growing concern on consumer spending amidst the imposition of the new consumption tax and subsidy structure, it expects demand for quality private healthcare to remain robust.
“This is largely due to the broadly positive outlook on the domestic economy which underlies the healthcare industry,” it said.
Meanwhile, increasing payments via company and insurance scheme (70 per cent) vis-à-vis out-of-pocket payment (OPP) would also lend support to the research arm’s expectations of sustained demand for quality private healthcare.
MIDF Research noted that the sector continues to trade at rich valuations, in excess of 40-fold financial year 2015 (FY15) price earnings ratio (PER) mainly due to strong support seen in IHH Healthcare Bhd’s (IHH) share price.
“We believe this could be due to the strength of its earnings growth prospect underpinned by ambitious expansion plan,” it said.
The research arm also expects KPJ Healthcare Bhd’s (KPJ) valuations to re-rate as earnings continue to strengthen on strong contribution from recently-opened hospitals in prior years.
Specific to IHH, MIDF Research expects earnings growth to remain robust 18 per cent in FY15 driven by the strong private healthcare demand in Singapore which augurs well for the operations at the Mount Elizabeth Novena Hospital.
“Management expects to open 170 beds by end of 2014 and we believe this could gradually increase to more than 200 beds over 2015,” the research arm said.
Furthermore, it noted that the strong Singapore Dollar against the Ringgit would favour IHH’s earnings and mitigate the impact of the weak Turkish Lira.
The research arm added that domestically, several of IHH’s capacity expansion plans would be completed and opened up in the year namely, Pantai Hospital Kuala Lumpur and Gleneagles Kuala Lumpur Hospital which should add over 200-bed capacity.
While KPJ lacks the earnings diversity that IHH possesses, MIDF Research said that the group’s earnings have rebounded strongly in FY14.
“We expect the momentum to sustain, further insulating any margin dilution from new hospital openings in the year.
“We expect two new hospital openings in FY15 namely, KPJ Pahang and Perlis Specialist Hospital,” it said.
The research arm also looks forward to full year contribution from hospitals that were opened in FY14 namely, KPJ Rawang and KPJ Bandar Maharani in Muar, Johor.
“We also look forward to further clarity on the government’s plan to restructure Malaysia’s Health System under the 1 Care in 2015 as this could be positive for the sector and a possible share price catalyst for KPJ which has considerable exposure to the domestic market,” it said.
All in, MIDF Research reiterated its ‘positive’ stance on the sector.
While the research arm is ‘neutral’ on both KPJ and IHH, it expects the sector’s earnings to remain strong on robust demand for quality private healthcare which bodes well for the performance of recently-opened hospitals.