Investment Highlights

• Covid-19 vaccine in Malaysia soon. Thus far, the Malaysian government has procured Pfizer, AstraZeneca and COVAXsourced vaccines for 40% of our population. It is in negotiations with CanSino, Sinovac (China) and the Gamaleya National Centre (Russia) to provide vaccines for another 40% of the population. Malaysia is expected to receive its first batch of 1.0 million doses of the Pfizer Inc/BioNTech Covid-19 vaccine in February 2021.

• Vaccines will be deployed only after National Pharmaceutical Regulatory Agency (NPRA) approval. The NPRA is responsible in ensuring all products are evaluated and tested properly before being registered for the Malaysian market. Given the need for speed, the priority review will most likely be used for quicker approval of Covid-19 vaccines. We believe the first batch of vaccines will be administered in 2Q2021 or 3Q2021.

• First step of Covid-19 supply and distribution chain is transportation companies. While Changi Airport is expected to be the regional hub for the distribution of Covid-19 vaccines from global suppliers, we reckon that KLIA will be the local hub for the vaccines’ distribution in Malaysia. Local transporters will then take over and deliver the vaccines to distribution centres.

• Fill-finish companies. While a deal concerning Covid-19 vaccine’s fill-finish process is yet to materialise, Duopharma (UNRATED) and Pharmaniaga (UNRATED) are favoured by the government to undertake these processes. So far, Pharmaniaga has signed an agreement with Serum Institute of India to perform fill and finish processes for pneumococcal vaccines.

• Who would be the vaccine distributors in Malaysia? We think that Pharmaniaga would be the main distributor of the Covid-19 vaccine to the local hospitals. However, we reckon that Pharmaniaga may appoint other companies to help distribute the vaccine all over Malaysia. In this space, we believe that Apex Healthcare (UNRATED) would benefit due to its solid distribution network and excellent past track record of distributing vaccines and other pharmaceutical products.

• KPJ (HOLD), IHH (BUY) and other private healthcare providers to play role in vaccination programme. We opine that private hospitals and clinics would help in Malaysia’s Covid-19 vaccination programme. This is due to the cold chain facility, logistical and manpower limitations of the public sector. We think that private healthcare providers may receive a fixed fee from the government in return for their service, though we doubt that operating profit margins would be high due to this being a national service.

• We maintain OVERWEIGHT on the Malaysian private healthcare sector. Although a recovery in inpatient volume is only expected to be modest in 2021F, earnings prospects for the sector are positive. This is due to potential public-private collaborations, improved margins as a result of cost-cutting measures and a focus on low capex and gestational period projects. Over a longer time period, the recovery in medical tourism, improved public health awareness and an aging population would drive the next level of growth in the healthcare sector.

• Our top pick is IHH. We still favour IHH for its: (1) strong recovery potential in 4QFY20 and FY21E; (2) expansionary outlook; (3) effective cost-cutting and capital efficiency methods; and (4) its position in the premium segment of the private healthcare sector, translating to high EBITDA margins of over 20%. Our DCF-based fair value for IHH is RM6.25/share (Exhibit 1).

Source: AmInvest Research - 6 Jan 2021