Review

In the recent results season, 6 out of 8 companies under our coverage reported earnings that were in line with expectations. However, Top Glove and Hartalega’s results came in below expectations due to weaker-than-expected volume and higher-than-expected cost respectively.

In 1Q24, the big 4 rubber glove companies’ cumulative net loss reduced substantially to RM5.3mn as compared to a net loss of RM548.7mn in 1Q23. We attribute this to: i) higher sales volumes, ii) cost efficiency and iii) absence of impairments. On the top-line, 1Q24 revenue slipped 1.7% to RM1.7bn.

As for the healthcare services segment, 1Q24 sector earnings increased to RM502.0mn from RM414.1mn in 1Q23, mainly boosted by higher revenue intensity from both IHH and KPJ.

Outlook

We believe that the performance of glove players would continue to improve, driven by higher ASP and volumes. Despite that, we do not expect margins to increase substantially due to increases in raw material and natural gas prices in 2Q24. Note that the oversupply situation is anticipated to persist throughout 2024.

We are sanguine that 2Q24 patient volumes will improve QoQ, especially in May/June due to timing difference, while revenue per patient would remain resilient. Note that the “Puasa” month was held earlier in March (vs. last year April). In addition, we expect contributions from medical tourists to increase as well. Likewise, we expect Duopharma and Supercomnet’s earnings to grow QoQ in 2Q24, due to the higher demand.

Recommendation

In all, we maintain our Neutral stance on the healthcare sector. Our top pick for the sector is Duopharma (TP: RM1.47) due to improving outlook, driven by the new APPL contract that the group secured recently.

Post results, we have revised our TP for Hartalega to RM3.58 (previously RM4.08), Supermax to RM1.00 (previously RM1.05) and Kossan to RM2.40 (previously RM2.65). No changes to stock recommendations for the healthcare sector.

Source: TA Research - 5 Jun 2024