Long term positive for healthcare’s expanding outlook
KUCHING: The healthcare sector in 2019 looks promising as analysts have guided that the sector is in expansion mode, supported in the long-term through an aging population, rising affluence and increasing life expectancy in Malaysia.
In a sector report, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) detailed that the healthcare sector is currently in expansion mode thanks to a recent boost in budget allocation.
The PH government’s maiden budget for 2019 saw allocation for health services increased by 7.8 per cent year over year (y-o-y) to RM29 billion from the previous allocation of RM27 billion in 2018.
The allocation included a RM10.8 billion mainly for the building and maintaining of hospitals and health clinics, upgrading of the existing healthcare facilities, and the procurement of medical equipment.
“Major ongoing projects include the construction of Sri Aman Hospital, Sarawak and Putrajaya Hospital Endocrine Complex,” said the research arm.
But besides this, the budget 2019 also saw the announcement of a national health protection fund for our B40 group, the scheme is set to commence on Jan 1, 2019 and will provide free coverage for four critical illnesses for up to RM8,000 and a maximum of 14 days replacement income.
Citizens ages 50 and above in the B40 group will also be eligible to participle in a pilot health screening project in an attempt to diagnose illnesses earlier and increase quality of life in the B40 population.
Free mammogram screening, HPV vaccination and pap smear campaigns will still continue in government hospitals and clinics as usual.
According to AmInvestment Bank Bhd (AmInvestment Bank), these initiatives are all set to boost the revenues of private healthcare operators.
“While there are no full details yet, we believe the scheme will force private healthcare operators to drive down their prices, but the resulting volume will support them to achieve economies of scale with a slight margin compression.
“We expect KPJ Healthcare to be the prime beneficiary as the group has presence in almost every state in Malaysia,” said the bank.
Even without the government backed initiatives, MIDF Research is still expecting private healthcare operators to display further earnings improvement in 2019 thanks to organic growth from new as well as more matured hospitals.
For IHH Healthcare Bhd (IHH), MIDF Research guides that it will be focusing on expanding into new markets such as India, Turkish and the Chinese markets.
The group’s expansion into India will be driven by the consolidation of the newly acquired controlled stake in Fortis Healthcare Ltd (Fortis), India’s second largest hospital chain, into the group’s current 4,500 beds.
The opening of the 350-bedded Gleneagles Chengdu hospital in China is also slated to open in 2HFY19 and expected to contribute positively to their revenue. However, the two greenfield hospitals they had planned in Turkey for 2020 have been shelved for a later date.
KPJ on the other hand plans to open two new specialist hospitals in Kuching and Miri in 2019.
“In addition, we are also expecting the opening of new specialization wards in recently opened hospitals will allow them to take more complex cases and hence, contribute positively to the operators’ earnings,” added the research arm.
And despite various business headwinds faced by private operators in 2018, MIDF Research says that it is evident that both IHH Healthcare Bhd (IHH) and KPJ has managed to perform well with both providers recording significant growth in their revenue per inpatient for their Malaysian operations in the recent third quarter of financial year 2019 (3QFY19).
IHH’s revenue per inpatient has improved by 2.6 per cent y-o-y to RM6,778, while KPJ improved by 1.78 per cent y-o-y to RM7.501.
On another note, companies with the goods and services sectors are currently being under reviewed by the Domestic Trade and Consumer Affairs Ministry and pharmaceutical company, Pharmaniaga Bhd, is one of the companies being subjected to review.
“Despite the concern on nonrenewals of the government contracts, we are fairly confident that Pharmarniaga’s contract will be renewed given its track record, experience and ability to supply products on a large scale national level,” added the research arm.
Overall, MIDF Research is maintaining their ‘Positive’ call on the sector as they expect the sector to continue experience tailwinds from government intervention to make healthcare services more accessible to the B40 and the aging population, rising affluence and increasing life expectancy of the Malaysian market.
AmInvestment Bank on the other hand, maintained its neutral stance on the sector as they believe that the weakening ringgit may negatively impact operators as majority of drugs, medical supplies and medical equipment are denominated in US dollar.