Healthcare sector to grow organically, driving earnings
KUCHING: Organic growth from the healthcare sector is expected to drive sector earnings from the fourth quarter of financial year 2017 (4QFY17) and onwards as players start to reap increased revenue and earnings from their existing and newly launched hospitals.
In a sector update, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) explained that they expected organic growth from all hospitals to keep sector earnings resilient amidst the higher operating expenditure generated from the opening of new hospitals which disrupted the sector’s earnings growth.
Despite the higher opex, most healthcare operators were still reporting year over year (y-o-y) improvements in their earnings due to the revision in prices to accommodate inflation effects on operating expenditure (opex); increases in the number of complex cases undertaken; and increases in contribution from existing and newly opened hospitals.
“In addition, we opine that current condition of high opex is temporary as the high opex will be offset by higher contribution from the newly opened hospitals going forward,” added the research arm.
Building on this, the research arm also expects capital expenditure (capex) levels to ease out going forward due to an anticipated slower pace of expansion in the sector.
“Major hospital operators under our coverage have indicated that at most, one new Greenfield hospitals will be added each year as compared to two Greenfield hospitals previously. Aside from that, the only capex these operators will incur will only be on the expansion of existing hospitals,” guided the research arm.
The lower capex is expected to further drive earnings growth in 4QFY17 as major players can begin their earnings recovery as their working capitals used to finance previous expansions will now be free.
Andbesidesthat, resilientdemand for healthcare is also expected to continue as both IHH healthcare Bhd (IHH) and KPJ Healthcare Bhd has managed to record growth in inpatient admissions across their home markets.
This demand for healthcare services are forecasted to remain robust for the remainder of 2017 due to the increase in ageing population and lifestyle diseases driving domestic demand, and weaker ringgit driving demand for medical tourism.
“Furthermore, the increasing adoptions of medical insurance policy and employer tie-up with private hospital operators are also expected to encourage the usage of private medical services,” added the research arm.