We remain positive on Malaysia’s healthcare sector in the medium term, supported by the increasing trend of ageing population, growth in medical tourism as well as the overall increase in demand for medical services. While the introduction of the Health White Paper (HWP) which entails potential collaborations through public-private partnerships (PPP) would ease the overcrowding situation in the public sector, we foresee challenges during the implementation phase. Nevertheless, we believe this is not likely to affect the private sector in the near term. Hence, we remain Overweight on the healthcare sector and reiterate outperform calls on both KPJ and IHH in view with a rising number of inpatient volumes and bed occupancy rate, while maintaining neutral on ApexH in cautious on slowing demand for its core respiratory illness products.

• Growth drivers moving forward. We believe the medium-term prospect of Malaysian healthcare sector will remain intact, supported by increasing demand for medical services due to our ageing population. Also, the granting of up to 30-day visa-free entry to Chinese and Indian citizens should bode well for the Flagship Medical Tourism Hospital Programme. Moreover, the rising obesity rate among children and adolescents would lead to a greater demand for healthcare services, including pharmacotherapy, bariatric surgery, preventive care, diagnostics, and other treatment options. 
  
  Implementation of HWP. We are positive on the integration of the HWP into Malaysian dual-healthcare system, which would help to ease the prolonged overcrowding situation in the public sector through strategic collaborations. However, we believe the HWP would face challenges, including the proposed value-based model's framework with potential difficulties in standardizing metrics for measuring patient outcomes. Moreover, the development of a dedicated health fund is still in the conceptual stages and remains unclear. We anticipate a rise in overall healthcare costs due to the increased workforce required for scrutinizing and processing claims from various hospitals. Malaysia’s healthcare sector would also be at risk of distorting free-market practices with the proposed implementation of transparency in medicine pricing.
   
• KPJ as our top pick. Moving to 1HFY24, an increasing number of inpatients and outpatients is anticipated, leading to higher BOR. Our top pick is KPJ, hinging on growing in inpatient volume and BOR. We continue to like its efforts in identifying and optimizing underperforming assets, coupled with improvements in routine business operations and processes. Additionally, KPJ also aims enhance a culture of crossreferrals within its facilities, to ensure patients receiving optimal experiences and clinical outcomes.

Source: PublicInvest Research - 2 Feb 2024