KUCHING: Analysts are confident that the healthcare sector in Malaysia will continue to chart positive growth this year supported by increased expenditure on health by the federal government.
AmInvestment Bank Bhd (AmInvestment Bank) in a report yesterday noted that over the years, the federal government has increased its expenditure on health as a percentage of gross domestic product (GDP) to boost the development of the healthcare industry in the country.
Thus, the research firm is optimistic about the outlook of the healthcare sector going forward.
It believed the healthcare sector will continue to grow despite the current economic slowdown given the resilient demand for healthcare services which registered annual growth rate averaging 11 per cent.
AmInvestment Bank forecasts Malaysia’s inpatient volume growth of six per cent and two per cent respectively this year for two private healthcare services providers, IHH Healthcare Bhd (IHH Healthcare) and KPJ Healthcare Bhd (KPJ Healthcare).
For IHH Healthcare, the research firm expects the company’s operational beds in Malaysia to increase by three per cent to 2,125 beds this year against 2,065 beds recorded in 2015.
It believed the higher number of beds could be driven by the ramp-up at the company’s newly opened Gleneagles Medini, Johor as well as planned expansion at Pantai Ayer Keroh, Melaka.
Nevertheless, AmInvestment Bank noted there are no new hospitals expected to open for IHH Healthcare this year while new hospitals, Gleneagles Hong Kong, Khubchandani (India), Acibadem Maslak and Altunizade both in Turkey are expected to open next year.
On another note, the research firm said IHH Healthcare witnessed strong inpatient volume growth in Singapore (11 per cent) and Acibadem (17 per cent) in 1Q16.
It observed that the group’s revenue growth across four key markets in 1Q16 was commendable; Singapore (0.3 per cent), Malaysia (3 per cent), India (6 per cent) and Acibadem (8 per cent).
AmInvestment Bank believed that those revenue growth could be sustained on ramping up of operations at existing and new hospitals, price reversions, better cost efficiency and case mix.
Hence, it expects particular stronger topline growth for IHH Healthcare given contributions from newly acquisitions and ramp-up at the group’s existing hospitals.
Financially, AmInvestment Bank observed that IHH Healthcare has strong balance sheet with cash balance of RM2.1 billion and net gearing of 0.2 times.
As for KPJ Healthcare, AmInvestment Bank opined that the healthcare services provider will continue to attract more inpatient volume this year.
The research firm gathered that the healthcare services provider’s inpatient volume grew by 3.7 per cent in the first quarter of this year (1Q16) after recording marginal declines in the previous two quarters.
It oberved that the volume softened last year in tandem with lower consumer spending following the implementation of the Goods and Services Tax (GST) in April 2015.
Besides that, AmInvestment Bank noted the occupancy rate at the hospitals managed by KPJ Healthcare remained healthy at 70 per cent with average length of stay of 2.6 days.
Apart from that, the research firm observed that KPJ Healthcare is planning to open a few new hospitals in the next few years.
Those include KPJ Pahang, KPJ Perlis, Bandar Dato’ Onn Specialist Hospital (BDO) in the Klang Valley and BDC Specialist in Kuching.
It added KPJ Pahang, scheduled to open this year will have an initial capacity of 120 beds which can be increased to 190 beds.
AmInvestment Bank believed KPJ Pahang might achieve earnings before interest, tax, depreciation and amortisation (EBITDA) within 12-18 months as the project is a relocation of existing capacity from KPJ Kuantan (70 beds).
Besides that, it gathered the company’s management is targeting to improve EBITDA margin this year by riding on the gestation curve of its hospitals.
Overall, AmInvestment Bank remained upbeat on the prospects of the healthcare sector.