Analysts see short term headwinds for healthcare sector
KUCHING: Going into the second half of 2021 (2H21), shortterm headwinds from lingering Covid-19 cases in Malaysia is expected to impact nearly all economic sectors, but analysts note that these factors are counteracted by various specific business ventures in companies in the healthcare sector.
According to the research arm of Hong Leong Investment Bank Bhd (HLIB Research), for IHH Healthcare Bhd (IHH), the group is geographically diversified operations is advantageous for recovery.
“Examining daily Covid-19 cases in IHH’s key markets, we note that in India and Turkey, cases have declined rapidly,” HLIB Research said.
Going into 2H21, the research arm expected inpatient occupancy to rebound, given India and Turkey have begun relaxing lockdown measures in certain regions. It gathered that in India, Delhi, Mumbai and other states have begun relaxing lockdown rules in early June while Turkey have begun a gradual normalisation process since mid-May.
“Given IHH’s diversified geographical revenue streams, compared to KPJ Healthcare Bhd’s (KPJ) operations solely in Malaysia, we expect a stronger recovery in earnings in 2H21 from better in patient occupancy rates in India and Turkey compared to Malaysia.”
Going into 2H21, HLIB Research expected KPJ’s inpatient occupancy to remain significantly below pre-pandemic levels given that Malaysia’s Covid-19 cases remain elevated and the final stage of Malaysia government’s reopening plan is expected to only occur in November to December 2021.
While lower inpatient occupancy is expected to be partially cushioned by higher average revenue per inpatient, which was 27 per cent higher year on year (y-o-y) in the first quarter of 2021 (1Q21), the research arm reckoned any meaningful recovery in earnings will likely only arrive in financial year 2022 (FY22).
On Pharmaniaga Bhd (Pharmaniaga), HLIB Research recapped that the group has secured 24 million doses of Sinovac vaccines (14 million from their fill and finish operations and 10 million finished doses) to distribute, with 12 million contracted to the Ministry of Health (MoH) and another seven million doses to governmentlinked companies (GLCs) and state governments.
“We reckon that significant contribution to earnings will come from the 14 million fill and finish doses, given the value added nature of the venture.
“While the 10 million finished doses is purely trading in nature, we expect the margins to be razor-thin.”
Based on the research arm’s back of the envelope calculations, HLIB Research expected the fill and finish of 14 million doses to add circa RM15.5 million at the earnings before interest and tax (EBIT) level.
“We expect the earnings contribution of the 14 million fill and finish doses to occur mainly in 2H21 given Pharmaniaga had started distribution in 2Q21 and has a fill and finish capacity of two million doses per month, potentially rising to four million subject to regulation changes.
“Despite this, we reckon contribution from the vaccine distribution is priced in as Pharmaniaga is currently already trading at approximately 21-fold forward price earnings (PE) which is approximately +2SD five year mean.”
As for UEM Edgenta Bhd (Edgenta), HLIB Research expected earnings in the medium term to be driven by new contract wins in the facilities management division, particularly in Healthcare Support Services.
The research arm noted that this was due to the partnership with Asma to secure jobs in Saudi Arabia and cutting edge facilities management software as a service (SaaS) offering which not only gives Edgenta an efficiency advantage over their competitors but also the opportunity to sell the service to companies who would prefer to run facilities management in house.
“For example, in 1Q21, Edgenta won a contract from KLCC to design and build a command centre that allows them to track workflow and increase efficiencies.”