Asean healthcare on a growth pill
THE outlook for Asean’s healthcare industry appears increasingly promising, driven by sustained demand for high quality healthcare services across the region.
This demand is expected to fuel both organic growth and strategic acquisitions among healthcare providers, creating opportunities for investors.
Following a tour of 10 healthcare facilities in Singapore, Malaysia and Thailand, CGS International Research (CGSI Research) expresses greater optimism about the sector.
In its recent report, the brokerage says: “We conclude our healthcare tour more positive on regional healthcare players given the growing demand for healthcare services across the region, which should continue to accommodate organic and inorganic growth of hospital players.”
CGSI Research maintains its “overweight” stance on the sector, supported by an anticipated 16.7% compound annual growth rate (CAGR) in earnings per share (EPS) over the next three years for covered hospital operators in Singapore, Malaysia and Thailand.
Its top stock picks include Malaysia’s KPJ Healthcare Bhd and Thailand’s Bumrungrad Hospital Pcl and Praram 9 Hospital Pcl (PR9).
“We believe KPJ will continue to benefit from the growth of Malaysia’s medical tourism industry due to its cost competitiveness, with about 98% of its 2024 revenue generated from Malaysia versus IHH Healthcare Bhd’s around 17%,” the research house explains.
CGSI Research also highlights Bumrungrad Hospital’s valuation at 20 times its forecast 2025 EPS, well below its 10-year mean, making the stock appear oversold amid stagnant foreign patient growth in 2024.
Meanwhile, PR9 is seen benefiting from stronger foreign patient revenue growth in 2025.
Strong momentum in Malaysia
CGSI Research’s healthcare tour included visits to KPJ’s Damansara Specialist Hospital 2, IHH Healthcare’s Pantai Hospital Kuala Lumpur and Prince Court Medical Centre, as well as Sunway Healthcare Group’s Sunway Medical Centre and Sunway Sanctuary.
During this tour, it notes that Malaysia’s healthcare sector is gaining traction among Indonesian patients seeking cost-effective treatment alternatives to Singapore’s pricier medical services.
“With the exception of niche treatment procedures such as proton beam treatment, we believe Malaysia’s healthcare cost competitiveness against Singapore has made it increasingly popular among Indonesian patients,” CGSI Research states.
Separately, Sunway Sanctuary, an integrated retirement living residence located within Sunway Medical Centre, draws particular interest for its innovative care model.
“While we think that the integration of an aged care facility into a healthcare facility may not be widely accepted today in Asean, given the traditional mindset of home ownership and privacy, we think the offering could gradually gain traction and we could see more hospital players jumping on this bandwagon over the longer term,” CGSI Research says.
The brokerage also believes a potential listing of Sunway Healthcare Group by late 2025 or early 2026 could catalyse a valuation re-rating for Malaysia’s healthcare sector.
Changing trend
In Singapore, CGSI Research visited Singapore Institute of Advanced Medicine’s proton beam therapy centre, IHH Healthcare’s Mount Elizabeth Novena Hospital and Raffles Medical Group’s Raffles Hospital.
Despite rising healthcare costs weakening Singapore’s competitive edge in medical tourism, the research house believes the country’s robust pool of medical professionals and access to advanced treatment options will sustain patient inflows.
“We believe the concentration of medical professionals and availability of novel treatment procedures, such as proton beam treatment, draws patients from across the region,” it says.
In Thailand, CGSI Research’s tour included Bangkok Dusit Medical Services’ (BDMS) wellness centre, Master Style Hospital’s plastic surgery facility, and hospitals under BDMS – Chularat Hospital (CHG) and Bangkok Chain Hospital (BCH).
CGSI Research notes that Thailand’s hospitals cater to distinct markets, with BDMS offering premium services to attract foreign patients, while CHG and BCH focus more on local patients through the government-backed Social Security Scheme.
“In Thailand, we think that the stronger foreign patient revenue growth and a revision to Social Security Organisation (SSO) reimbursement rates could alleviate concerns regarding stagnating profitability for Thailand hospitals,” it adds.
Nonetheless, CGSI Research cautions that regulatory changes to private healthcare insurance in Malaysia and Thailand could pressure hospital margins.
“We think that regulatory changes to private healthcare insurance could affect payors’ reimbursement rates in Malaysia and Thailand, resulting in lower profitability of hospital players,” it says.
Additionally, a delay in Thailand’s review of SSO reimbursement rates remains an overhang for hospital players in the country.
CGSI Research also flags the risk of deteriorating macroeconomic conditions hampering medical tourism, which could dampen revenue growth during the industry’s expansion phase.
Positive sentiment
Public Investment Bank Research (PIVB Research) echoes the positive outlook, particularly for Malaysia’s private healthcare sector.
Following the release of Bank Negara’s (BNM) 2024 Annual Report, the brokerage highlights key initiatives designed to address rising medical inflation and promote long-term sustainability.
“We are positive on the initiatives taken to contain escalating medical inflation. However, we think that the measures may take longer to implement,” PIVB Research says.
Among these initiatives are efforts to improve price transparency, transition to a diagnosis-related group (DRG) payment model, and develop value-based insurance products.
PIVB Research anticipates Malaysia’s adoption of the DRG model will take time, citing complexities in data collection and infrastructure readiness.
“We believe the introduction of the DRG system in Malaysia may still be premature, given the complexities involved in capturing detailed cost data,” the brokerage explains.
Nonetheless, PIVB remains optimistic about Malaysia’s healthcare sector, reiterating its “overweight” call on the industry.
“We believe the Malaysian private hospitals will still remain resilience, underpinned by an increasing inpatient volume, healthy bed occupancy rate of around 70% and rising medical tourism,” it says.
PIVB Research highlights IHH Healthcare as its top sector pick, citing the group’s diversified asset base, disciplined growth strategy and regional footprint.
“The group continues to benefit from sustained demand for healthcare services, with its recent strategic acquisition of Island Hospital, Penang, showcasing its disciplined approach to growth,” it remarks.
Notably, Penang accounts for 45% of Malaysia’s medical tourism revenue, largely supported by Indonesian visitors.
Overall, both CGSI Research and PIVB Research remain constructive on the healthcare sector, viewing medical tourism, innovative care models and disciplined expansion strategies as catalysts for continued growth.
While inflationary pressures and regulatory risks pose potential challenges, the underlying demand for quality healthcare services is expected to keep the industry on a steady upward trajectory.