Flattish but better year ahead for healthcare sector — Analysts
KUCHING: Malaysia’s healthcare sector is expected to see a flattish, but better year ahead compared to its performance in 2016, the research arm of CIMB Investment Bank Bhd (CIMB Research) observed.
In its 2017 strategy report, it opined, “Although earnings growth is expected to be unexciting, current valuations will be sustained by earnings resiliency as well as scarcity premium for healthcare stocks in Malaysia.
“We will turn more positive on the sector in tandem with a better economic outlook for Malaysia.”
It noted that healthcare stocks under our coverage reported weak earnings for in the first nine months of 2016 (9M16), mainly due to lower demand for private healthcare (KPJ) and drugs (Hovid).
Furthermore, it pointed out that Hovid’s earnings continue to be volatile given foreign exchange (forex) impact while profit margins
Although earnings growth is expected to be unexciting, current valuations will be sustained by earnings resiliency as well as scarcity premium for healthcare stocks in Malaysia. CIMB Research
were hit by operational expenses from its new production lines, which are commissioned gradually in its new tablet and capsule plant.
Similarly, KPJ recorded lower overall patient volumes from the impact of weaker consumer sentiment, the research firm said.
“Moving into 2017, we expect both KPJ and Hovid to record flattish earnings growth, mainly due to the persistently weak economic outlook.
“We expect lower ESOS expenses to impact KPJ’s earnings as well as project stronger contribution from its new and existing hospitals.
“In Hovid’s case, the group will benefit from growing contribution and lower start-up costs from its new tablet and capsule plant, especially in the second half of 2017 (2H17),” CIMB Research opined.
Overall, it noted the healthcare sector, especially hospital stocks, continues to trade at premium valuations given its defensive nature and strong earnings growth potential.
“We believe that its rich valuations will continue to be supported by the scarce supply of syariah-compliant healthcare stocks and demand for resilient stocks in a volatile Malaysian market.
“Furthermore, long- term earnings prospects remain intact as ageing populations and rising medical insurance coverage will increase the demand for private healthcare,” it said.
CIMB Research maintained a ‘neutral’ view on the overall sector.
In a separate report, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) believed that the healthcare sector would see a better year ahead as demand remained resilient.
It opined, “We continue to believe that the demand for healthcare is still resilient. This is evident from the recent earnings announcement where both IHH and KPJ recorded healthy inpatient admissions across their home markets despite the marginal decline in revenue intensities.
“Going into 2017, we opine that the demographic factors such as increase in ageing population and increase in lifestyle diseases will continue to drive the adoption of private healthcare services.”
Additionally, it pointed out that with ringgit at its current level, it would be attractive for medical tourism traveller to seek medical treatments in Malaysia as oppose to its neighbouring countries.