• Overall, the recently concluded 3Q24 corporate earnings season can be deemed favourable.
   
• Private hospital operators are poised for double-digit earnings growth, driven by steady inpatient and outpatient visits, rising healthcare spending and expanding health tourism supported by digitalization efforts. Malaysia's medical devices market is also projected to grow at a CAGR of 8.2% (2023- 2028), fueled by modernization and rising chronic disease cases.

• We maintain an OVERWEIGHT call on the healthcare sector, with IHH (BUY, TP: RM8.60) as our top pick. Our positive outlook on hospital players is supported by (i) organic capacity expansion, (ii) growing demand for elective surgeries, (iii) improved adoption of healthcare digitalization, (iv) increased revenue from health tourism, and (iv) rising demand driven by an aging population.

Private Hospitals Drive Double-Digit Growth

The recent corporate earnings season delivered positive results for healthcare companies. Out of the four companies under our coverage, two (KPJ and Nova Wellness) met expectations, while IHH outperformed, driven by stronger-thanexpected revenue contributions across all markets. In contrast, Apex Healthcare underperformed due to weaker-than-expected contributions from associates. For private hospital players, both posted double-digit growth in revenue and earnings. IHH recorded a 34.9% YoY growth in earnings, while KPJ reported an 11.6% YoY increase, both fueled by increased hospital activity and steady growth in patient volumes. In the pharmaceutical segment, Apex Healthcare showed better top-line growth, supported by decent demand for pharmaceuticals, consumer healthcare products and medical devices. However, for our nutraceutical player, Nova Wellness earnings were pressured by higher raw material costs and subdued demand which weighed on overall performance in this segment.

Sustained Growth Ahead

We expect private hospital operators to sustain earnings growth of double-digit, supported by steady increases in both inpatient and outpatient visits. The recovery in inpatient admissions is likely to extend into 2025, aligning with the long-term growth in demand for private healthcare services in Malaysia. Healthcare spending is another key driver. Malaysians, on average, spent over RM2,022 per person on healthcare in recent years, up from around RM1,700 in 2020, a growth of more than 17%. This increase reflects higher demand for medical services and greater health awareness following the pandemic. Organic capacity expansion among private hospital operators is also expected to enhance income from health tourism. Although the contribution of medical tourism remains below 15% for both KPJ and IHH, we anticipate steady growth in this segment, supported by ongoing efforts in healthcare digitalization. It is worth to note that, according to BMI, FitchSolutions, Malaysia's medical devices market is projected to grow at a CAGR of 8.2% from 2023-2028, reaching MYR15.4bn by 2028. Growth drivers include modernization of healthcare facilities and a rising prevalence of chronic diseases. Aside to that increased patient volumes in private hospitals will also lead to better demand for pharmaceuticals, especially for chronic conditions and specialized medications. In the biopharmaceutical space, Pharmaniaga (Non-Rated) has made significant progress. Its recombinant human insulin, Wosulin, received National Pharmaceutical Regulatory Agency (NPRA) approval in November 2024 and is expected to be commercialized in 1Q25. This development will improve access to locally produced insulin, addressing a growing need in Malaysia's healthcare landscape.

OVERWEIGHT on the Sector

We maintain an OVERWEIGHT rating on the healthcare sector, supported by (i) organic capacity expansion, (ii) growing demand for elective surgeries, (iii) improved adoption of healthcare digitalization, (iv) increased revenue from health tourism, and (iv) rising demand driven by an aging population. Our BUY recommendation for IHH (TP: RM8.60) remains intact, driven by expectations of strong performance from increased hospital activities. For KPJ, we have revised our FY25 and FY26 earnings forecasts upward by 18% and 15%, respectively, following an increase in our revenue growth assumptions. This adjustment reflects a more aggressive approach, especially as the group achieves a historic RM1bn quarterly revenue milestone in the current quarter. We maintain a HOLD rating with a revised TP of RM2.52 (up from RM2.11) as revised our earnings forecast. However, we believe further upside potential is limited, as the market has already priced in these expectations, with KPJ’s share price up 89.2% YoY.

Source: BIMB Securities Research - 9 Dec 2024