Analysts stay ‘overweight’ on healthcare, KPJ and IHH top picks

KUALA LUMPUR (April 23): Investors should continue to “buy” healthcare stocks as demand is relatively inelastic, consumer health awareness is rising and sales of pharmaceuticals and over-the-counter drugs are robust due to the spillover effect of rising hospital activities and a surge in foreign tourist arrivals, analysts said.

RHB Investment Bank expects the private healthcare sector to post stronger numbers this year due to organic expansion strategies, visa-free entry of tourists from China and India to Malaysia, a growing number of non-communicable diseases and a rapidly ageing society.

“While the healthcare sector generally has defensive attributes, we continue to advocate for investors to lean towards domestic-centric names in view of better earnings stability,” it said in a sector update on Tuesday.

RHB still favours private hospital operator KPJ Healthcare Bhd due to the group’s strategic rebranding and scaling, gradual pickup of the healthcare tourism segment and improvement in operational efficiency as its hospitals under gestation are expected to achieve Ebitda (earnings before interest, taxation, depreciation and amortisation) breakeven by end-2024.

Meanwhile, Kenanga Investment Bank has named IHH Healthcare Bhd as its top pick due to its pricing power as inelastic demand for private healthcare services allows providers such as IHH to pass on higher costs amid rising inflation, and its presence in multiple markets such as Malaysia, Singapore, Turkey and China.

Kenanga forecasts that IHH’s earnings for FY2024, ending on Dec 31, will be driven by an increase in patient throughput and revenue intensity, fueled particularly by a rise in acute cases such as elective surgeries.

For FY2024, Kenanga anticipates a growth in revenue per inpatient for IHH by 12% to 16%, compared to a 19% surge in FY2023, primarily due to the low base effect in FY2022.

Moreover, Kenanga expects the inpatient throughput to increase by 9% to 12%, while projecting the bed occupancy rate (BOR) to range from 65% to 73% across IHH’s hospitals in Malaysia, Singapore, India, and Turkiye.

Shares of KPJ Healthcare have climbed over 38% since the start to reach a record high of RM1.96 during Tuesday’s morning trading session, valuing KPJ at RM8.87 billion. It is trading at a price-earnings (PE) ratio of 30.39 times.

IHH Healthcare’s share price increased by 3.09% to a high of RM6.34 during the morning session, its highest since August 2022. The stock pared its gains at RM6.27 as of 10.52am — still up 12 sen or 1.95% — giving it a market capitalisation of RM55.31 billion. It is trading at a PE ratio of 18.74 times.

KPJ has nine “buy” and five “hold” calls with a 12-month target price (TP) of RM1.88, while IHH has 16 “buy” and five “hold” ratings with a 12-month TP of RM7.11.