• Within the healthcare sector, the importance of the "Social" and "Governance" dimensions of ESG has consistently overshadowed that of the "Environment".

• The COP26 Health Programme, initiated by the World Health Organization and its partners, aims to establish healthcare systems that are sustainable.

• The "Social" aspect of ESG has always been of utmost importance due to its foundational role in providing services that directly impact human well-being.

• The "Governance" aspect holds exceptional significance within the healthcare sector because healthcare is one of the most heavily regulated industries.

• Another valuable perspective for assessing a healthcare company through the ESG lens involves examining the hospital's accreditation or certification, which serves as a dependable indicator of adherence to rigorous healthcare standards.

• Maintain OVERWEIGHT on healthcare sector. We favor IHH (BUY, RM7.19) and KPJ (BUY, RM1.43)

Healthcare sector in Malaysia has, for the most part, tackled the fundamental ESG factors and does not display significant ESG-related concerns.

In local healthcare sector, the significance of the "Social" and "Governance" facets of ESG has consistently outweighed that of the "Environment" component. While regulations for profit-oriented institutions have typically emphasized areas like climate risk and environmental accounting, there is now a growing shift towards broader considerations, such as healthcare accessibility and environmental justice. We believe that healthcare providers in Malaysia have generally taken adequate measures to address essential ESG factors, and they do not seem to have significant ESG-related issues.

Globally, Malaysians hold the third-highest level of trust in their healthcare system.

In line with government initiatives, Malaysia has gained recognition for the quality of its healthcare services. According to a healthcare systems study conducted by the research firm Ipsos, Malaysia holds the third position in the rankings, trailing behind Switzerland and Singapore, which occupy the top two spots for their dependable healthcare services. The survey revealed that 66% of Malaysians regard their country's healthcare system as good or very good, while 71% of Singaporeans and 68% of Swiss respondents share similarly positive perceptions about healthcare in their respective nations. Thailand, a neighbouring country, secured the fifth position with a 63% rating, whereas Indonesia received a lower rating, with only 55% of its citizens expressing confidence in their healthcare system.

Maintain Overweight on Healthcare Sector

We maintain an OVERWEIGHT call on the Healthcare Sector with a BUY call on IHH (BUY, RM7.19) and KPJ (BUY, RM1.43) underpinned by several factors namely: (i) a growing demand for elective surgeries, (ii) the rebound in occupancy rates and patient numbers as we transition to an endemic phase, (iii) an increase in health insurance ownership, and (iv) a rising trend in health tourism. It is worth to note that potential downside risks to our sector assessment includes: (i) potential currency volatility impacting medical tourism, and (ii) the continued scarcity of nurses.

Source: BIMB Securities Research - 18 Oct 2023