Medical Tourism in Malaysia

• Malaysia has emerged as a popular medical tourism destination due to its high-quality healthcare services, affordable costs, modern facilities, and skilled professionals. Its cultural diversity, warm climate, and affordable accommodation further enhance its appeal. Additionally, Malaysia’s lower medical costs, proximity, direct flights, and prompt consultations make it an attractive choice for international patients.

• Among the top treatments sought in the county are general health screening, cardiology, fertility, oncology and orthopaedics, including medical and surgical related as well as cancer treatments.

We attracted 1mn health travellers last year and aim to exceed 1.5mn in 2024

• According to the Malaysia Healthcare Travel Council (MHTC), the number of healthcare travellers peaked at 1.22mn in 2019. However, the Covid-19 pandemic and subsequent travel restrictions caused a significant drop in 2020, with only 689,000 travellers recorded. The decline continued into 2021, with the number falling further to 561,000. With the reopening of international borders and a resurgence in economic activity, healthcare travel figures have rebounded, surpassing 1mn in 2023. This achievement highlights Malaysia’s strengthening reputation as a premier destination for medical tourism.

• In the first quarter of this year, we recorded 363,000 healthcare tourist arrivals, marking a 17% increase from the 310,000 arrivals in 1Q23. If this trend continues, we could see nearly 1.5mn healthcare travellers by the end of 2024 (2023: 1.39mn).

This year, we are targeting RM2.5bn in medical tourism revenue, generating RM9.6bn in economic spillover. Our goal is to increase this to RM2.8bn by 2025, with an anticipated economic impact nearing RM10bn.

• Travellers seeking medical treatment while exploring Malaysia's cultural and natural attractions are required to obtain a medical tourism visa. This single-entry visa is valid for three months and allows for up to two adult companions. To streamline their entry, Malaysia's Immigration Department has introduced the Green Lane System at major entry points, expediting customs clearance for medical travellers.

• With the increase in health travellers, medical tourism revenue has risen significantly. Last year, it surged by more than 70% YoY, reaching RM2.25bn in 2023 (2022: RM1.3bn). This exceeded the Malaysia Healthcare Travel Industry Blueprint target of RM2bn by 2025 – two years ahead of schedule. The previous highest revenue was RM1.7bn in 2019.

• The goal for this year is to reach RM2.5bn in revenue, with an expected economic spillover of about RM9.6bn to other industries. This reflects a fourfold spillover effect, encompassing indirect and induced expenditures such as investments and job creation. We are on track to meet this target, as revenue increased by 12% YoY to RM1.15bn in the first half of the year.

• MHTC has set a higher target of RM2.8bn for next year, anticipating a substantial economic impact of RM10bn. This suggests that for every RM1 a healthcare traveller spends on medical treatment, an additional RM3.57 is expected to be generated in related industries, including tourism, transport, accommodation, and food and beverage.

Penang and Kuala Lumpur Are the Top Medical Tourism Destinations

• In Malaysia, Penang and Kuala Lumpur stand out as premier medical tourism destinations, offering an extensive range of health and tourism services conveniently accessible. Last year, Penang generated 40.5% of the country’s medical tourism revenue, closely followed by Kuala Lumpur in the central region with 41.0%.

• For the first time, two Malaysian hospitals – Gleneagles Kuala Lumpur and Sunway Medical Center – have been recognised in the top 250 World’s Best Hospitals in 2024. This year’s list features data on 2,400 hospitals across 30 countries, including the US, most of Western Europe and Scandinavia, 10 Asian countries, Australia, and more. (Please refer to Figure 9).

• Due to its close geographical proximity, shared language, and cultural similarities, Indonesia has been a significant source of medical tourism. Last year, Indonesian patients accounted for 64.9% of the total medical tourism (see Figure 7). Many of these patients come from tier 1 cities like Jakarta and Surabaya. The leading destinations for Indonesian medical tourists are:
   
  • Penang – Island Hospital, Gleneagles, Loh Guan Lye, Penang Adventist and Pantai Hospital Penang are popular destinations for various treatments
     
  • Kuala Lumpur – Popular destination for cardiology (IJN) and other treatments (Gleneagles, Pantai, Prince Court, KPJ)
     
  • Others – Mahkota Medical Center (Malacca), KPJ Johor and Regency Specialist Hospital (Johor)

• After Indonesians, Chinese travellers account for 5.0% and Indian travellers for 3.1% of the total. Notably, nearly 50% of Chinese visitors come for fertility and cancer treatments, according to MHTC. With the recent implementation of a 30-day visa-free entry policy for China and India until the end of 2025, we anticipate a significant increase in medical tourism from these countries. This policy simplifies treatment planning, reduces visa costs, and facilitates return visits for follow-ups and additional care.

• In other emerging markets, MHTC is capitalising on government-to-government (G2G) partnerships with countries like Maldives and various Middle Eastern nations. Additionally, they are actively fostering collaborations between hospitals and specialists in specific therapeutic areas and promoting community segments, such as the Chinese Muslim population.

• MHTC is also leveraging expatriates who have been working in Malaysia for a year or more as advocates. These foreign patients, unlike temporary health tourists, serve as long-term endorsements of Malaysia's healthcare services.

Regional Competition

• Thailand and Singapore are significant competitors in the medical tourism industry. Thailand, the largest revenue contributor in ASEAN, is estimated to generate around USD850mn (approximately RM3.7bn) in 2023, surpassing Malaysia's RM2.25bn. Singapore is expected to record revenues of USD250mn to USD270mn. Both Thailand and Malaysia are likely to benefit from the shift in interest toward value-for-money healthcare services, further enhanced by visa-free travel to these countries.

• Singapore's strong SGD has reduced its appeal for cost-sensitive medical tourists, but the country targets patients seeking complex procedures or those from developed markets for higher income returns. In 2024, six Singaporean hospitals were ranked among the World’s Best Hospitals, with the highest at number 11. In comparison, Thailand’s Bumrungrad International Hospital was ranked 130, and no Indonesian hospitals made the list.

• The Indonesian government has recently embarked on improving medical infrastructure to ensure better quality care and reduce outbound medical tourism. Key initiatives include partnering with renowned institutions like the Mayo Clinic to develop new medical facilities, expand the range of treatments offered, increase the number of hospitals, and even relax regulations on foreign specialists working in the country. However, the push by the Indonesian government to improve domestic healthcare infrastructure is unlikely to deter Indonesians from seeking health treatment overseas in the medium term.

• We feel that there is still some way to go for Indonesia's medical tourism before it can come up to par with regional and further standards. Affluent, high-income Indonesians generally seek treatment overseas due to a lack of trust in the local system and infrastructure. There is a strong perception amongst Indonesians that its healthcare system suffers from a lack of doctor supply and poor quality of doctors, infrastructure and facilities, and it will take time for this perception to change.

Opportunities for Malaysian Players

Strong ties between MHTC and private players.

• Since its establishment in 2005, MHTC has excelled in promoting medical tourism, as shown by the influx of healthcare travellers and significant revenue growth. This success has positioned MHTC for ongoing and sustainable growth, in line with its five-year targets outlined in the blueprint. The blueprint highlights three key areas: the Healthcare Travel Ecosystem, the Malaysia Healthcare Brand, and Market Expansion.

• During this rebuilding phase, MHTC focuses on improving service quality, enhancing brand consistency, strengthening Malaysia’s brand in key markets, and expanding into new ones. Co-chaired by the health and economy ministers and supported by key government officials and industry experts, MHTC aims to establish Malaysia as the leading global healthcare destination.

• MHTC's operations are bolstered by government funding, which supports its annual operating expenses and the conduct of roadshows and expos to promote Malaysia's medical tourism. Under Budget 2024, MHTC has been allocated RM30mn, the highest amount ever, up from RM20mn previously..

High standards of medical treatment.

• The increased budget allocation of RM41.2bn to the Ministry of Health in 2024 further drives the development of specialised healthcare hubs and the adoption of advanced medical technologies. These include robotic surgery, advanced imaging and diagnostic tools, telemedicine, and AI-powered digital health platforms. This investment should greatly benefit our medical tourism development going forward.

• The presence of internationally accredited hospitals and clinics in Malaysia reflects its dedication to offering world-class healthcare services. As part of Malaysia’s current health tourism promotion drive, 92 facilities accredited by the Ministry of Health (MoH) and the Malaysia Healthcare Tourism Council (MHTC) are being showcased as premier health tourism destinations. This includes 22 elite hospitals, 58 regular hospital members, and 12 affiliate facilities.

Capturing More Markets

• MHTC is exploring niche markets to enhance its presence, focusing on both curative and preventive treatments. The new phase of the medical healthcare segment will include niche branding initiatives in cardiology, oncology, fertility, dental treatments, and premium scientific wellness offerings. Additionally, MHTC plans to collaborate with key industry players to develop a comprehensive elderly wellness programme.

• Indonesian patients are a major contributor to Malaysia’s medical tourism, with industry reports indicating that up to 70% of inbound patients come from Indonesia, primarily from Sumatra and central regions (such as Jakarta).

• While reinforcing our leadership in tier-1 cities, we should target patients in tier-2 and tier-3 cities. The next focus includes tier-2 and tier-3 Indonesian cities such as Batam, Pekanbaru, Bandung, and Palembang, as well as emerging cities in China like Guangzhou, Shenzhen, and Xiamen. Additionally, we aim to establish secondary markets in Indochina, South Asia, and the Middle East and North Africa region. We should also cater to the Chinese Muslim community segment and other diverse communities to broaden our reach. These markets are seen as having high potential due to the lack of healthcare facilities, cultural similarities, and the availability of frequent direct flights.

Positive on the Outlook of Private Healthcare Players

We expect continued revenue growth for private healthcare players fuelled by higher demand for quality healthcare services and growing healthcare needs both locally and from around the region. Coupled with the ageing population, overcrowded public hospitals and medical tourism, private hospitals have embarked on an aggressive expansion plan. IHH Healthcare targets to expand bed capacity by 46% (vs 2,822 operating beds in 4Q23), while KPJ aims to hit 5,000 beds by 2028 (vs 3,643 operating beds in 4Q23). Meanwhile, Sunway Healthcare plans to add around 1,842 beds by 2030, taking its total bed count to 3,000.

We believe Malaysia would continue to be the first destination choice for Indonesians seeking medical treatments and second opinions, given its proximity, flight connectivity, cultural affinity, insurance coverage and language. In addition, we foresee Malaysia gaining more market share from Singapore due to its cheaper fees, especially for health screenings and scope services. However, Singapore remains the go-to destination for critical and complex multi-speciality care like radiation therapy. Note that the cost of IVF treatment in Malaysia ranges from RM15-18k as compared to SGD13-19k from a Singapore facility.

We have observed that all three private healthcare players (IHH, KPJ and Sunway Berhad) under our coverage have ambitious plans to increase the contribution from medical tourism. Note that medical tourism contributed about RM230mn (6.0%) to IHH Malaysia operations, RM190mn (5.7%) to KPJ and RM120mn (8.3%) to Sunway Healthcare revenue in FY23. With that, IHH market share is the largest at 10.2%, followed by 8.4% for KPJ and 5.3% for Sunway Healthcare of Malaysia’s total health tourism revenue of RM2.25bn in FY23.

As of 1H24, IHH and KPJ medical tourism revenue in Malaysia surged by 50% and 21.8% YoY, respectively. Meanwhile, international patients in Sunway Healthcare grew by more than 40% in 1H24. Moving into 2H24, we believe that the growth is sustainable, fueled by higher medical travellers and healthcare inflation.

Stock Picks

IHH Healthcare Berhad (Hold, TP: RM6.88)

IHH is one of the world’s largest healthcare groups. The group currently owns 11 Pantai Hospitals, 4 Gleneagles Hospitals, as well as Prince Court Medical Centre and Timberland Medical Centre in Malaysia. Prince Court Medical Centre recently won the Medical Tourism Hospital of the Year – Malaysia, in the Healthcare Asia Awards 2024 as well as the Orthopaedic Service Provider of the Year 2024 by Global Health Asia-Pacific.

Island Hospital will become IHH’s 18th hospital in Malaysia pending the completion of the acquisition, which is expected by the end of 2024. Island Hospital is the top medical tourism hospital in Malaysia, supported by an established ecosystem developed over 3 decades. The hospital attracts approximately one out of three inbound foreign patients into Malaysia. Note that medical tourist accounted for about 60% of Island Hospital FY23 revenue. We believe the acquisition will allow IHH Malaysia to build on its leadership position in Penang and will enable IHH to create a medical tourism powerhouse with increased access to the Indonesian catchment area. We believe Island Hospital would be a transformative opportunity for IHH given its leading position in Penang, extensive specialist pool and clinical offerings, as well as its status as the hospital of choice for foreign patients.

In all, we project that IHH’s medical tourism revenue in Malaysia will at least double in FY25 (compared to approximately RM230mn in FY23). Furthermore, we see synergies through cross referrals within the IHH network, increased medical tourism penetration, group procurement and process optimisation. In addition, the group will establish a new 200-bed tertiary hospital in Sarawak, targeting foreign patients from neighbouring countries.

KPJ Healthcare Berhad (Hold, TP: RM2.00)

KPJ is a homegrown brand with over 40 years of experience and 29 hospitals in Malaysia. The group recently won 11 awards at the Global Health Asia-Pacific Summit and Conference 2024. Malaysia’s status as a medical tourism destination presents an opportunity to attract international patients. KPJ plans to focus its resources on the Indonesia and Bangladesh markets. For instance, the group organised the KPJ Jakarta Expo, a conversion-driven initiative to create awareness and a platform to showcase KPJ hospitals to Indonesia patients. Thus far, we have gathered that the feedback has been positive with a slew of enquiries.

Looking forward, KPJ will pursue events in cities across Indonesia, including Surabaya, Bandung and Semarang. Meanwhile, the group has forged a partnership with Marriott International to elevate the standard of care offered to patients, drawing on the expertise from the hospitality sector in healthcare services. We expect KPJ’s health tourism revenue to grow by 35% in FY24 (vs. 21.8% in 1H24). Growth would be fuelled by i) collaboration with local agencies in Indonesia, ii) high demand for KPJ Kuching and iii) 20-30% health tourism growth from its ten hospitals in the Central region.

Thereafter, the group plans to raise market share to 20% (vs 8.4% in FY23) within 2-3 years via: i) 13 rep offices in Indonesia, ii) full-fledge health tourism team, iii) double investment for promotion and iv) leverage on strategies on Mayo Clinic affiliation, robotic, heart & lungs and preterm delivery management.

Sunway Berhad (Buy, TP: RM4.76)

Sunway Healthcare Group (SHG) is a leading integrated private healthcare group under the healthcare arm of the Sunway group of companies. SHG is 84% owned by Sunway Berhad and 16% held by GIC Pte Ltd, Singapore. Sunway now has three tertiary hospitals in its stable: Sunway Medical Centre Sunway City, Sunway Medical Centre Velocity, and Sunway Medical Centre Penang. The three hospitals have a combined licensed bed count of 1,158 and more than 400 specialist consultants.

The ongoing expansion projects are on track, with SMC Damansara set to begin operations in 4Q24 and SMC Ipoh in 1Q25. We expect these new facilities to replicate the success of previous openings, achieving EBITDA-positive results within 12 months. Currently, SMC Damansara is in the pre-commencement phase, and both new hospitals have secured operating licenses and completed the recruitment of doctors and nurses. The group has received the green light from its strategic partner GIC, which holds a 16% stake in SHG, and is currently engaging with investment bankers to prepare for the IPO. Given the momentum and operational success, we believe that an IPO by the first half of 2026 is highly probable, well before the agreed deadline of 2027.

SHG is among players in Malaysia’s medical tourism sector, receiving a higher number of international patients seeking high-quality and affordable healthcare solutions. Sunway’s International Patient Centre is a one-stop centre that handles everything from translation and visa processing, to billing and appointments. Coupled with the ongoing expansion of SMC Penang, phase 2 (110- beds by 3Q24) and 10 representative offices in Indonesia, we expect SHG foreign patient revenue to increase by 48% in FY24 (vs. RM120mn in FY23).

Other potential beneficiaries of the higher medical tourist arrivals include TMCLIFE (Not Rated) and ALPHA (Not Rated). TMC plans to expand its referral centres in Vietnam and Indonesia. The group is on an expansion trajectory, with significant additional capacity and capabilities coming in the next 2 years, including developing a new integrated medical hub, Thomson Iskandar, in Johor. Meanwhile, Malaysia is one of the world’s top medical destinations, and fertility treatments are amongst the most sought-after treatments for healthcare travellers. Foreign patients from Indonesia come to Malaysia for IVF due to cheaper cost, higher pregnancy rates, better technology and better execution. In addition, Chinese tourists are expected to return significantly under the current visa-free scheme. Under Alpha’s Malaysia operations, we note that customers from foreign countries contributed 39.6/44.9% of its total revenue for FY22/23.

Source: TA Research - 11 Sept 2024