KPJ may be affected from impending drug price control
KPJ Healthcare Bhd (KPJ) may suffer potential impact from the impending drug price control by the Ministry of Health (MoH).
AffinHwang Capital recapped that on May 2, the Cabinet announced that price control measures for pharmaceutical drugs would be implemented in 2019 to ensure the affordability of drugs.
“The Ministry of Health (MoH) will use external reference pricing (ERP) to benchmark drug prices in Malaysia, averaging the three lowest drug prices in three countries to determine ceiling prices,” the research firm said in a report.
“Ceiling prices will be imposed at the wholesale and retail levels at clinics, hospitals and pharmacies. The specific mechanism to be used has yet to be determined as it is still in the discussion stage.
“If materialised, KPJ could be adversely impacted as pharmaceutical sales account for circa 30 per cent of its total revenue.”
Based on Affin Hwang Capital’s sensitivity analysis, every one per cent cut in average selling price (ASP) for KPJ’s pharmaceutical drugs would reduce the group’s core net profit by one per cent in financial year 2020-2021 estimate (FY20-21E).
“That said, the group may raise other non-regulated hospital charges to cushion the impact.”
All in, AffinHwang Capital remained cautious on the potential impact from the impending drug price control in Malaysia, potential weak inpatient volume growth due to weak consumer sentiment, as well as start-up losses from greenfield expansion.
On another note, the research firm was also cautious on any potential further delay on KPJ’s new hospital openings which has been targeted to open by end of the year.
“While there is some delay to its expansion plan, management is optimistic that its target of four new hospital openings by end of the year remains intact.