<!--[CDATA[

KUALA LUMPUR: Private healthcare operators in Malaysia are set to see higherearnings in 2019 on the back of rising demand for their services frommedical tourists and the effects of new government policies encouraginghealth protection.

While growth prospects for the sector globally are positive in thelong term, underpinned by an ageing population, rising affluence andincreasing life expectancy, analysts noted the local private healthcaresector has added catalysts.

These include competitive charges and hospitalisation costs inmedical tourism, a generally English-speaking population, and variousincentives from the government.

Besides raising the allocation for health services to RM29 billion in Budget 2019, the government said it will introduce a new B40 NationalHealth Protection Fund, on a partnership basis with private insurancecompanies.

Started on Jan 1, 2019, the scheme, among others, provides freecoverage for four critical illnesses for up to RM8,000 and a maximum of14 days of replacement income. Hospitalised patients can get an incomereplacement at RM50 a day for a maximum of 14 days, or RM700 a year.

“[This announcement] focuses on making healthcare services moreaccessible to the B40 (bottom 40%) income group, which in turn willincrease the number of patients seeking treatment in private hospitals,” MIDF Research analyst Nabil Zainoodin told The Edge Financial Daily inan email response.

Although there are no full details yet on how the new policy wouldimpact healthcare companies under coverage such as IHH Healthcare Bhdand KPJ Healthcare Bhd, AmInvestment Bank noted it could spur them torevise their prices.

“We believe the scheme will force private healthcare operators todrive down their prices, but the resulting volume will support them toachieve economies of scale with a slight margin compression. We expectKPJ to be the prime beneficiary as the group has presence in almostevery state in Malaysia,” AmInvestment Bank analyst Nafisah Azmi said on the phone.

MIDF Research and AmInvestment Bank maintained their “positive” and“neutral” ratings respectively on the healthcare sector for 2019.

A caveat: Private healthcare players may be negatively impacted by aweakening ringgit against the US dollar as costs of key inputs such asdrugs, medical supplies and equipment are denominated in the greenback.

“On the other hand, a cheaper [ringgit] may boost Malaysia’s medicaltourism volume. Malaysia’s medical tourists contribute almost 5% of IHHand KPJ’s revenue,” Nafisah said.

Nabil concurred, saying IHH and KPJ’s core operations generallyremain resilient and perform relatively well despite facing variousheadwinds. “Both managed to record growth in revenue per inpatientacross their home markets.”

Despite escalating medical costs, IHH and KPJ recorded growth inrevenue per inpatient for their Malaysian operations in their thirdquarter of financial year 2018 (3QFY18) results. IHH’s revenue perinpatient grew 2.6% year-on-year to RM6,678; KPJ grew 1.78% to RM7,501.

On the back of improved inpatient revenue, KPJ’s earnings alsoimproved during the quarter with net profit up 35% while revenue rose4%. However, IHH saw a net loss in 3QFY18 on higher foreign exchangelosses despite a marginal revenue increase of 1% from growth in existing operations.

Analysts believe healthcare providers will still meet the masses’needs by expanding their hospital portfolios which would furtheraccelerate revenue growth in 2019.

“For KPJ, there will be quite a healthy number of new hospitalopenings next year (2019). We understand there will be a few newgreenfield developments which will open in Kuching and Miri, Sarawak,specifically during 1QFY19 — BDC Kuching Specialist Hospital [with 150beds] and KPJ Miri Specialist Hospital [96 beds],” said Nabil.

While the opening of KPJ Batu Pahat, with 150 beds, is expected in2019, the date is not confirmed yet. “Altogether, these hospitals willadd about 10% additional beds to the group’s existing operating beds and contribute positively to the group’s revenue growth,” said Nabil.

However, he sounded a note of caution on the initial start-up costsof new hospitals, and KPJ’s Indonesian operations’ poor performance,still dragging earnings.

MIDF Research is maintaining its “neutral” call on KPJ with a targetprice (TP) of RM1.11. AmInvestment Bank is maintaining its “hold” callwith a fair value of RM1.15. The stock settled at RM1.03 last Friday,valuing it at RM4.41 billion.

“For IHH, we expect the focus next year (2019) will be on improvingits performance in the Turkish and Indian markets, among other places,as well as penetrating further into the Chinese market,” said Nabil.

MIDF Research maintained its “buy” call on IHH and revised upwardsits TP to RM6.33 from RM6.22 previously, factoring in a higher revenueintensity per inpatient at IHH’s Turkish operations. AmInvestment Bankmaintained its “hold” call with a fair value of RM5.30.

“This was driven by an aggressive ramp-up of its Achibadem Altunizade hospital in Istanbul. This could result in higher cash balances,enabling the group to pare down the foreign currency-denominated debtsfaster than anticipated. The group is targeting to pare down a third ofits foreign currency-denominated loans by 1QFY19,” Nabil said.

He added that notwithstanding IHH’s slight hiccup in continuing withits acquisition of Fortis Healthcare Ltd, due to a court order totemporarily maintain the status quo on the transaction, consolidatingFortis into the group, currently with more than 4,500 beds, wouldeventually help drive revenue. IHH has since reiterated its commitmentto the investment.

“We believe this is a blessing in disguise as IHH will not have tobear a larger quantum of loss from Fortis’ subdued performance given its shareholding will stay at 31.1% in the near term. This will give IHHmore time to turn around the business before Fortis’ performance has amore significant impact on IHH’s bottom line given its status as aparent company,” said Nabil.

The 350-bed Gleneagles Chengdu hospital in China, slated to open in the second half of 2019, is expected to contribute positively to the group’s revenue as well. IHH shares settled at RM5.43 last Friday, with a market capitalisation of RM48.06 billion.

Source: The Edge Market

]]>

• Mohamad Shahizam Fauzi Item A
• Head, CommunicationsItem B
• +603 8776 6168

shahizam.f@mhtc.org.my
Muhammad Rasydan Ma’at                                                
Asst. Manager, Communications
+603 8776 6168        
rasydan.m@mhtc.org.my