“We expect the private healthcare sector’s earnings growth to persist into 2024.
“This is underpinned by relatively inelastic demand, rising health awareness among consumers, and a rapidly ageing society anchoring generic drugmakers’ mid-to long-term growth prospects,” it said in a statement.
While the sector has defensive attributes, RHB IB stated that it continues to recommend investors lean towards domestic-centric names, as these should offer better earnings stability.
RHB IB said its top pick for the sector is KPJ Healthcare Bhd, premised on its strategic rebranding and upscaling exercise, a gradual pick-up in the health tourism segment, and improvement in operating efficiency as its hospitals under gestation are expected to break even by 2024.
“KPJ’s key focus in 2024 involves driving efficiency, primarily for hospitals in gestation periods, and to a greater extent, unlocking its potential value, with an ultimate objective of bridging the gap between its valuation and that of IHH Healthcare Bhd,” it said.
The investment bank noted that KPJ’s valuation discount against IHH’s in the enterprise value/earnings before interest, taxes, depreciation and amortisation terms has narrowed to 5% as at Jan 18, 2024 versus the five-year historical average of 18.5%.
As for IHH, RHB IB expects it to continue focusing on improving the number of beds, as outlined by its new five-year bed count target of 3,800 units.
“Given the hyperinflation situation currently in Turkey, we believe that IHH will continue to diversify its revenue towards patients paying in ex-Turkish Lira denominations while adopting timely price adjustments to mitigate any cost pressures,” it said.
RHB IB said the health tourism outlook in Malaysia remains positive, thanks to the availability of world-class facilities and services that come at competitive prices, on top of easy access to such healthcare and communication with medical professionals.
Based on data gathered from the Malaysia Health Tourism Council (MHTC), health tourism is expected to generate revenue of RM2 billion in 2023, with the actual revenue generated during the eight months of the year worth RM1.4 billion, surpassing its pre-pandemic peak of RM1.7 billion in 2019.
To further strengthen the health tourism landscape, MHTC has outlined several initiatives such as the Flagship Medical Tourism Hospital Programme, cross-selling tourism and healthcare services and facilities, customer service digitalisation, and identifying and developing new market opportunities.