KUCHING: Plagued with rich valuations and missed expectations, the healthcare sector’s performance appears to likely continue being dragged for the near-term period.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the overall second quarter of financial year 2017 (1QFY17) of the sector had come in below expectations.
Specifically, these results seasons saw IHH Healthcare Bhd (IHH) missing expectations while KPJ Healthcare Bhd (KPJ) and Pharmaniaga Manufacturing Bhd (Pharmaniaga) barely met expectations.
Having already missed consensus earnings for two successive quarters, IHH continued to be dragged by pre-operating and start-up costs from its Gleneagles Hong Kong Hospital and Acibadem Altunizade Turkey Hospital.
This has caused its stock to fall 10 per cent year to date compared to the KLCI of +7.8 per cent.
In the near-term, no reprieve appears in sight for IHH as its stock is expected to continue being de-rated and weighed down by its marked to market volatility on translation of non-Turkish Lira borrowings.
Similarly, our largest pharmaceutical company, Pharmaniaga, is also facing a bleak near-term as earnings are anticipated to be lukewarm at best in subsequent quarters thanks to the anticipation of volatile off-take and potential higher operating expenses.
And the roll out of the Pharmaceutical Health Information System (PHIS) is of course expected to continue damping its bottom-line over the short-term.
However, in the long-term the research arm is expecting the group’s manufacturing division to propel earnings as they aim to add about 200 new products over the next 10 years to its existing portfolio of circa 500 products.
“(This) should boost demand for its products and lift earnings.” Similarly, Kenanga Research is always optimistic that the sector on the whole will be supported in the long-term thanks to our ageing population and growing awareness in healthcare prevention.
“It is estimated that during the 2010 to 2040 period, Malaysian population aged 65 and over will increase to more than three-fold the 2010 population.
The increase will categorise Malaysia as an aging population society in 2021 when the population aged 65 years and above reach 7.1 per cent,” guided the research arm.
Based on this, it is projected that the population for the age group 0 to 14 years will decline from 27.4 per cent to 19.6 per cent in the same period; while the population for the age group 15 to 64 years and 65 years and over are expected to increase by 1.4 and 6.4 percentage points, respectively.
“Longer life spans will also result in a larger number of people aged 65 and above.
“This improvement is attributed mainly to advances in medical technology, higher personal wealth and growing awareness of the importance of healthcare and disease prevention.”