KUALA LUMPUR: The private healthcare sector is expected to report stronger numbers in the second half of 2024 (2H24) on its organic expansion strategies and the visa-free entry into Malaysia for tourists from China and India.
RHB research said it will also be supported by a growing number of non-communicable diseases (NCD), rising health awareness among consumers, and a rapidly ageing society.
The research firm maintained its 'Overweight' call on the sector, switching to a risk-on mode, leaning towards companies with the ability to pass on higher costs, inelastic demand as well as a more aggressive expansion plan.
IHH Healthcare Bhd is now its top pick for the sector, for its robust balance sheet (IHH's net gearing is at 0.32 vs KPJ Healthcare Bhd's 0.49), established medical technology infrastructure and appetite for inorganic growth.
RHB research said IHH's valuation remains attractive.
KPJ is currently trading at a 8 per cent premium over IHH vs both their relative valuations' historical mean of -14.5 per cent, which it deemed unjustified, given IHH's more aggressive expansion plan.
The firm said global merger and acquisition trends in healthcare industries are expected to acceleratein 2024 as hospitals around the world are faced with financial and operational challenges stemming from heightened operating costs and clinical workforce shortages.
"Being the largest healthcare service provider in Asia, IHH's clinical excellence and advanced medical equipment could enable it to spread its geographical presence in the high-growth region," RHB research said.
Regarding the pharmaceutical segment, the bank-backed research firm expects a robust recovery in 2H24, driven by growth in the consumer healthcare and over-the-counter product segments.
"This recovery is also expected to benefit from increased hospital activities and a rise in foreign tourist arrivals."
RHB research said key downside risks to its recommendation include higher-than-expected operating costs, lower-than-expected patient visits and revenue intensity growth, and unfavourable changes to the drug pricing mechanism by the Ministry of Health.