• Healthcare sector promising outlook is well supported by several key drivers, namely: (i) growing demand for elective surgeries, (ii) a recovery in occupancy rates and patient numbers, (iii) increased health insurance ownership, and (iv) a rising trend in health tourism.

• We hold a positive stance on hospital subsector, attributing to its defensive qualities and ongoing organic expansion plans.

• Maintain optimistic outlook on healthcare sector, with an Overweight rating and a BUY call on IHH (BUY, TP: RM7.18)

Expansion plans among private hospitals. Demand for healthcare is expected to remain resilient, as evidenced by the recent earnings announcements by both IHH and KPJ, which revealed admirable growth in inpatient admissions across their respective home markets. Looking ahead, we opine demographic factor, such as an increase in the ageing population and the prevalence of lifestyle diseases, will continue to drive the adoption of private healthcare services. On top of that, we hold a positive view on the hospital subsector, considering its defensive qualities and organic expansion plans. Both KPJ and IHH have emphasized their focus on organic expansion. KPJ plans to increase its bed capacity by another 400 beds in FY24, bringing total beds to approximately 3,989 beds from the end-of 3Q23 count of 3,589 beds. Meanwhile, IHH aims to sustain its organic growth by expanding bed capacity by approximately 25%, or nearly 3,000 new beds across Malaysia, India, Turkey, and Europe over the next three years. In terms of medical tourism, the attractive level of Malaysian Ringgit will contribute to the growing number of medical tourists. Despite concerns about inflationary pressure, we believe healthcare providers can sustain strong earnings growth in the medical tourism segment due to the rising demand for quality healthcare services. Leveraging on their cost advantage, we anticipate private healthcare providers in Malaysia can adjust their pricing strategies to maintain profit margins.

Foresee more collaborations between the public and private sectors. The Ministry’s Health White Paper (HWP) proposed by the Ministry of Health aims to reform Malaysia's healthcare system comprehensively. Presently, government hospitals have an average bed occupancy ratio of 73%. In response, the Ministry of Health is actively improving public hospitals' facilities with better equipment, indirectly leading the private sector to take on a greater role in providing primary healthcare services. This transition intends to ease the burden on the public sector, allowing it to focus more on delivering care to economically disadvantaged patients. This is expected to foster increased collaboration between the public and private sectors in response to growing demand.

Maintain OVERWEIGHT. We maintain an OVERWEIGHT call on Healthcare sector driven by several factors: (i) a surge in demand for elective surgeries as we transition to endemic phase, (ii) a recovery in occupancy rates and an increase in the number of patients, (iii) observing higher health insurance ownership in line with the growing Malaysian population, and (iv) increasing trend of health tourists. We maintain a favourable outlook on IHH (BUY, RM7.18) as we anticipate the group to achieve stellar results, driven by enhanced hospital activities and organic growth. However, we downgrade KPJ (HOLD, RM1.43) due to recent price rally, thanks to improved sentiment surrounding the group's outlook following its outstanding performance in 3Q23. It is worth noting that KPJ's share price has surged by nearly 40% YTD.

Source: BIMB Securities Research - 16 Jan 2024