Healthcare sector revenue to continue rising in 2H

PETALING JAYA: The earnings momentum for private healthcare, health supplements and pharmaceuticals providers will continue into the second half of this year (2H25) as demand for such services and goods keep rising.

Private healthcare operators are also less affected by the recently announced imposition 6% sales tax.

Kenanga Research said both IHH Healthcare Bhd’s Malaysian operations and KPJ Healthcare Bhd have manageable medical tourism revenue of around 5% to 7% to help offset the impact of the tax.

The research house, which has an “overweight” call on the sector, said, generally, private healthcare players recorded mixed results in first quarter of this year (1Q25).

It said IHH’s revenue intensity will continue to improve, driven by higher patient throughput, both from its domestic and international markets.

Meanwhile, KPJ Healthcare has guided for narrower losses in its hospitals that are undergoing expansion, although the quantum of improvement appears smaller.

The group is optimistic about earnings gaining momentum in 2H25 supported by better operational efficiencies stemming from ongoing cost optimisation efforts.

In terms of price-earnings (PE) valuation, KPJ is trading at 36 times this year’s forecast earnings and 31 times for next year, compared with Thailand’s Bumrumgrad Hospital and Bangkok Dusit at PEs of 17 times and 20 times, respectively.

Beyond this year, KPJ will add 800 beds, bringing its total to 5,200, largely via brownfield expansion.

With capital expenditure of between RM300mil and RM400mil this year, the group is looking at merger and acquisition opportunities for future growth.

It is also looking at acquiring yield accretive hospitals or assets that are complimentary to its core business for future growth.

In pharmaceuticals, Kenanga Research said Duopharma Biotech Bhd is expecting strong orders from the of Health Ministry this year.

The research house said Duopharma’s management expects sales to the public sector in the second quarter to account for 55% to 60% of its top line and also higher private-sector contributions, compared with 47% to 50% historically.

Kenanga Research also said it likes Kotra Industries Bhd for its integrated business model encompassing the entire spectrum of the pharmaceutical value chain, from research and development, product conceptualisation to manufacturing and sales.

Kotra manufactures and sells over-the-counter supplements and nutritional and pharmaceutical products under household brands such as Appeton, Axcel and Vaxcel.

The company also enjoys superior margins in its original-brand manufacturing business model versus low-margin contract manufacturing.

Elsewhere, Nova Wellness Group Bhd’s slow ramp-up of production at its new plant will likely drag top line contribution and hit margins due to worse-than-expected economies of scale.

Its earnings growth is driven by capacity expansion, a widening distribution network and penetration into local public hospitals, Kenanga Research added.