KUALA LUMPUR: The Malaysian hospital sector is poised for sustained growth in the second half of this year and beyond, boosted by the fortification of established hospital assets and ongoing growth in medical tourism across most continents.
Hong Leong Investment Bank Bhd (HLIB Research) maintained its 'overweight' stance on the Malaysian healthcare sector for 2024, as it appreciated the sector's long-term resilient growth drivers.
The research firm said fortification of established hospital networks could resolve historically volatile profit and return ratios.
It stated that private hospital operators such as KPJ Healthcare Bhd and IHH Healthcare Bhd are now shifting their focuses to fortify their established hospital networks through brownfield expansions and setting up various specialisation centres.
According to the research firm, brownfield expansions, an asset light model with a shorter gestation period, lead to more cost-effective growth in bed capacities.
Meanwhile, setting up various specialisation centres, which are centres of excellence, translated into higher revenue per inpatient admission.
"As a base case, the combination of these two strategies could deliver more stable profit and return ratios, as opposed to the volatile period during their aggressive expansion era in the 2010s.
"Under a bullish scenario, this could see a secular uptrend in the financial year 2024 (FY24) and beyond," it said in a research note today.
On medical tourism in Malaysia, HLIB said healthcare traveller revenue has been growing healthily, with a CAGR of 15 per cent from 2011 to 2019.
It added that local medical tourism revenue from January to November last year stood at RM1.92 billion, suggesting that it could reach RM2.1 billion in the full year of 2023.
The firm 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 the 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.
HLIB also noted that there will be two sizable incoming hospital initial public offerings (IPOs) in 2026 and 2027, and it is expected that the IPOs will be valued at least 20 times of the enterprise value to earnings before interest, taxes, depreciation, and amortisation ratio (EV/EBITDA).
"Hence, this could prompt investors to scrutinise the valuation divergence versus KPJ Healthcare and IHH Healthcare from 2026 onwards. As such, there is a rerating potential for both companies, with the former being the major beneficiary," it added.
HLIB said IHH Healthcare is its top pick in the healthcare sector with a target price of RM7.67 a share because it believes that the company's share price will experience a structural uptrend in the coming years.