High hopes for raising valuations in healthcare
KUCHING: In spite of a mixed bag of results in the recent first quarter of finnacial year 2018 results roundup, analysts are still hoping for a raise in valuations of healthcare stocks on the back of rising growth.
The recent 1QCY18 results season saw a mixed bag of results. Pharmaniaga Bhd came in above expectations thanks to betterthan-expected performance in the logistics and distribution division while KPJ Healthcare Bhd (KPJ) came in within expectation.
IHH Healthcare Bhd’s (IHH) results came in below expectations, which marked the fifth consecutive quarterly earnings disappointment, hit by higher-than-expected losses at newly start-up hospitals and pre-operating costs to prepare Gleneagles Hong Kong and Acibadem Altunizade Hospitals and incremental depreciation from newly built hospitals, amortisation and finance costs.
Over the longer term, Kenanga Investment Bank Bhd (Kenanga Research) said growth is expected to be supported by an ageing populationandgrowingawareness in healthcare maintenance and disease prevention.
“It is estimated that during the 2010-2040 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. Based on the United Nations’ (UN) definition, an aging society is when the population aged 65 and over constitutes seven per cent of the total population.
“Population for the age group zero to 14 years is projected to decline from 27.4 to 19.6 per cent for the same period. However, the population for the age group 15–64 years and 65 years and over is expected to increase by 1.4 and 6.4 percentage points, respectively, for the same period.”
Kenanga Research went on to note that growth drivers in the next five years will come from the following: In Malaysia, PPL is currently undertaking expansion projects in three hospitals, namely Pantai Hospital Ayer Keroh (160 beds, completion in 2020), Pantai Hospital Klang (120 beds, completion in 2020), Pantai Kuala Lumpur (120 beds, completion in 2018).
Greenfield projects meanwhile, are namely in China: Gleneagles Chengdu (350 beds, completion in end 2018), Gleneagles Nanjing (70 beds, completion in 2020), Gleneagles Shanghai (450 beds, completion in end 2019), and in Turkey: Acibadem Maslak (195 beds, target completion end 2018).
The greenfield projects are Acibadem Atasehir (325 beds, target completion 2019) and Acibadem Kartal (120 beds, target completion 2019).
The firm thus downgraded Pharmaniaga’s target price from RM4.25 to RM3.05 per share to reflect the derating concerns of Government reviewing all medical supplies concession agreements of which Pharmaniaga has a 10-year contract awarded, which will end in November 2019. Turn to Page B4, Col 1