KUALA LUMPUR: The Malaysian hospital sector is poised for sustained growth in the second half of this year and beyond, with IHH Healthcare Bhd slated as a major beneficiary.
Hong Leong Investment Bank Bhd (HLIB Research) said the local healthcare sector will be boosted by fortification of established hospital assets and ongoing growth in medical tourism across most continents.
The research firm stayed 'overweight' on the sector for 2024 with IHH Healthcare as the top pick with a target price of RM7.67 a share because it believed that the company's share price will experience a structural uptrend in the coming years.
According to HLIB, there will be two sizable incoming hospital initial public offerings (IPOs) in 2026 and 2027 that is expected to be valued at least 20 times of the enterprise value to earnings before interest, taxes, depreciation, and amortization ratio (EV/EBITDA).
The firm said this could prompt investors to scrutinise the valuation divergence versus IHH and KPJ in 2026 onwards and hence, there is a rerating potential for both IHH and KPJ, with the former as the major beneficiary.
"Among the two, we believe that IHH has the potential to distinguish itself due to its geographical diversification across nations in Singapore, Malaysia, Turkey, Europe and India, enabling the group to capitalise on growth in a variety of countries."
IHH has reputable global brand names such as Mont Elizabeth, Gleneagles, Pantai, Acibadem and Fortis, as well as its higher five-year and three-year historical EV/EBITDA average of 17 times and 15 times respectively, compared to KPJ's 12 times and 13 times," it said in a research note today.
HLIB said KPJ Healthcare Bhd and IHH Healthcare are now shifting their focuses to fortify their established hospital networks through brownfield expansions and setting up various specialisation centres.
It stated that combining these two strategies could deliver more stable profit and return ratios and under a bullish scenario, this could see a secular uptrend in financial year 2024 (FY24) and beyond. Both IHH Healthcare and KPJ Healthcare plan to increase bed capacities respectively from 12,246 and 3,520 currently to 16,250 (33 per cent) and 5,000 (42 per cent) by 2028.
On medical tourism in Malaysia, HLIB said Malaysia Healthcare Travel Council (MHTC)forecasted the revenue to grow another 15 per cent in 2024 to RM2.4 billion, which is consistent with pre-pandemic compound annual growth rate (CAGR) of 15 per cent in 2011 to 2019.
"We believe this growth is justifiable due to Malaysia's more affordable pricing without compromising on quality care."Besides, it is winning over market share from Singapore for Indonesian patients undergoing health screening and endoscopy (lower-valued medical services), as a result of lower prices from Malaysian peers," it added.