Renewed interest in KPJ Healthcare

PETALING JAYA: The valuation for local healthcare service providers has room for growth due to the bed-to-population ratio that falls short besides the growing appetite for mergers and acquisitions, according to RHB Research.

The research house said private healthcare service providers are ready for a potential sector valuation rerating from news reports on the privatization of IHH Healthcare Bhd and the upcoming listing of Sunway Medical and Columbia Asia by 2026 or 2027.

“The potential privatization of IHH should give rise to investors’ interest for KPJ Healthcare Bhd as the remaining sole listed multi-disciplinary healthcare service provider. “Shareholders seeking to unlock value on IHH should lead to near-term valuation rerating once the corporate exercise is finalized,” the research house said.

RHB Research added that KPJ and IHH had rallied 14.6% and 14.5% from the dates of their June quarterly results release.

However, the research house also noted the rebound in share prices could not be entirely attributed to the stronger-than-expected results, but was due to news about the potential privatization of IHH.

“The valuation for the local healthcare service providers still has room for growth considering the current beds per 1,000 population of 2.01 is still short of developed nations’ levels like Singapore and the UK and a growing appetite for mergers and acquisitions,” RHB Research said.

On the pharmaceutical segment, the research house said generic drug makers will benefit from the strengthening of the ringgit against the dollar as raw materials like the active pharmaceutical ingredients are denominated in dollars.

“We expect a positive earnings impact to drug manufacturers like Duopharma Biotech Bhd and Kotra Industries Bhd. Based on our estimate, for every 10% depreciation in the dollar, Duopharma’s and Kotra’s earnings are expected to strengthen 5% and 3% respectively.

“The pharmaceutical sector outlook should continue to be weighed by normalized consumer demand in the consumer healthcare and over-the-counter product segments,” it said.

Notably, the Malaysian Medical Association’s (MMA) Budget 2025 wish list for the healthcare sector remains on raising budget allocation to 5% of the nation’s gross domestic product, talent retention in government hospitals and digitizing healthcare services in the public space.

Moreover, MMA suggested that private players foster public-private partnership in the prevention and management of non-communicable diseases.

RHB Research maintained an “overweight” call on the healthcare sector with top picks being IHH (target price: RM8.80) and KPJ (target price: RM2.13).

It said KPJ’s growth would be underpinned by strategic rebranding and upscaling exercise, as well as a gradual pickup in the health tourism segment.