Analyst maintains positive stance on healthcare sector

PETALING JAYA: MIDF Research has reiterated its "positive" stance on healthcare sector, as it expects demand for services to remain robust for the remainder of the year.
In a note today, its analyst Noor Athila Mohd Razali said the research house opined that the sector's earnings growth will remain resilient, which is evident by the increase in inpatient admissions despite the ongoing battle against inflationary costs.
She said the research house "positive" stance is also premised on the strong demand for quality healthcare and lack of public healthcare amenities to cater for patients especially in the urban areas.
"We also opine that private healthcare operators will continue to be the preferred choice for the urban dwellers with higher disposable income and insurance coverage."
MIDF Research's top pick is IHH Healthcare Bhd, with a target price of RM7.06, as it favours the group's geographically-diversified revenue base, robust balance sheet and strategic expansion plans.
Moreover, Noor Athila said the research house continued to believe that the demand for healthcare will continue to be resilient, which is evident from the recent earnings announcement where both IHH and KPJ managed to record growth in inpatient admissions across their home markets.
Going forward, she said it opined that the demographic factors such as increase in ageing population and increase in lifestyle diseases will continue to drive the adoption of private healthcare services.
In addition, with ringgit at its current level, Noor Athila said it will be attractive for medical tourism traveler to seek medical treatments in Malaysia as oppose to its neighbouring countries.
Furthermore, she said the increasing adoptions of medical insurance policy and employer tie-up with private hospital operators are also expected to encourage the usage of private medical services.
In the recently concluded earnings season, Noor Athila said all of the healthcare operators under its coverage had posted earnings that were in line with the research house full-year earnings estimates.
Due to this, she said the research house has maintained its full-year earnings estimates for both IHH Healthcare and KPJ Healthcare, with target prices of RM7.06 and RM4.30 respectively.
"However, we have revised our earnings estimate for Pharmaniaga, as we opine that meaningful recovery in earnings will only be visible in 2H18. With that, we have revised our target price for Pharmaniaga to RM4.66, from RM5.19 previously."
During the quarter, Noor Athila said most operators experienced high operating costs associated with opening of new hospitals which disrupted earnings growth.
"That said, most healthcare operators reported year-over-year improvement in earnings due to the revision in prices to accommodate inflation effect on Opex, increase in number of complex cases undertaken and increase in contribution from existing and newly opened hospitals.
"In addition, we opine that current condition of high operating expenditure (opex) is temporary, it will be offset by higher contribution from the newly opened hospitals going forward."