GST leaves margins pressure on KPJ, IHH
KUCHING: AmResearch Sdn Bhd (AmResearch) expects to see pressures on margins for healthcare players such as KPJ Healthcare Bhd ( KPJ) and IHH Healthcare Bhd ( IHH) from the Goods and Services Tax (GST).
“Whi le mar g ins had improved last year, we foresee some pressure in the coming quarters as GST is rolled out in April. Both KPJ and IHH expect input costs to increase by two to four per cent when GST is implemented but this will be partially mitigated by price reversions,” it detailled in a sectoral yesterday.
“With new hospitals coming on- stream and expanding capacity, we expect flattish margin growth this year.”
The GST will lead to rise in medical costs, affirmed AmResearch.
“According to the Customs Depa r tment , se r v i c e s provided by healthcare professionals employed by private healthcare facilities are tax- exempt.
“However, the majority of the doctors who provide services at IHH and KPJ hospitals are independent practitioners – not under the hospitals’ payroll – and thus, their services are GST standard- rated. Ancillary services such as prescription, food, mortuary services are considered exempt supplies.”
To note, standard- rated supplies include non- related healthcare services ( such as food catering, parking, laundry services), rental/ leasing (operation theatre, clinics), seminars/training by doctors, fitness programmes (such as gym and spa) and medical aids for patients.
Medicines listed on the National Essential Medicine List are zero- rated; other medicines are GST standardrated.
“These players will have to absorb the cost increase, namely for the exempt supplies,” it opined.
Nevertheless, AmResearch ovserved that healthcare stocks were per forming within expectations judging from their recent financial year 2014 ( FY14) earnings.
“The two healthcare stocks under our coverage reported FY14 core earnings that were within both our and market expectations. Both companies reported earnings growth as a well as margin improvements.
“Core earnings for KPJ and IHH grew by 20 per cent and 29 per cent year on year respectively, on the back of 13 per cent and nine per cent topline growth.”
The topline growth could be attributed to increased patient volume, ramp- up of beds in existing hospitals and commencement of new ones last year. Recall that KPJ opened theRawang Specialist and Maharani Special ist hospitals in March and June, while IHH had opened the Aicibaden Atakent Hospital and Pantai Hospital Manjung in January and May.
“We believe that healthcare demand remains healthy on the back of an ageing nation (about 10 per cent of population over 60 years old by 2020), increasing hea lt h awa renes s and imp r o v i n g ec o n o m i c wellbeing.”