Healthcare players eye steady earnings recovery

PETALING JAYA: The recently concluded second quarter of financial year 2025 (2Q25) results reporting season saw slight deterioration in earnings delivery against its expectations, with private hospitals, health supplement and pharmaceutical players reporting a mixed set of results, according to Kenanga Research.

It noted that IHH Healthcare Bhd was driven by stable operations across the board due to sustained demand, high revenue intensity driven by a case mix of more acute patients, and better yields.

Overall, the research house pointed out that IHH’s first half of financial year 2025 (1H25) was driven by higher revenue intensity underpinned by inpatient throughput and revenue per inpatient.

“However, the 2Q25 net profit was eroded by start-up costs at Acibadem Kartal Hospital and pre-opening costs at Acibadem Vitosha Hospital, which had opened in February and May, respectively, coupled with discounts offered to payors in Malaysia,” it explained.

According to Kenanga Research, KPJ Healthcare Bhd barely met expectations, while Duopharma Biotech Bhd and Pharmaniaga Bhd came in within expectations.

Meanwhile, Nova Wellness Group Bhd’s earnings were hit by a less-than-optimum operating scale, leading to weak margins.

“Pending further development on the diagnosis-related group, we continue to remain positive, taking a view of longer-term growth prospects of the healthcare sector, which will continue to be underpinned by an ageing population, rising affluence and rising cases of chronic diseases globally,” the research house said.

It reiterated its “overweight” call on the sector with IHH as its top pick.

As for health supplement and pharmaceutical players, they reported mixed set results.

Duopharma’s strong results were underpinned by higher sales across all business segments, particularly the increased sales to the public sector and a one-off surge in insulin supply in 1Q25, as the group fulfilled outstanding orders following supply normalisation.

The company was optimistic that public sector contribution would contribute positively for the remainder of financial year 2025 (FY25).

“We expect public sector sales to account for 50% to 55% of the top line in 2H25 to bring our FY25 to 55% compared to 47% to 50%, historically,” said Kenanga Research.

“Based on our back-of-envelope calculation, unbilled Approved Product Purchase List (APPL) contracts from the government are estimated at RM330mil.

“Typically, an APPL contract will draw down its value proportionately over the course of the contract period.”

Meanwhile, it pointed out that Kotra Industries Bhd’s FY25 results were hit by foreign-exchange losses impacting its bottom line but still came in within the research house’s expectation.

The trend augurs well for Kotra, which manufactures and sells over-the-counter supplements as well as nutritional and pharmaceutical products under key flagship household brands such as Appeton, Axcel and Vaxcel.

Furthermore, the research house likes Kotra for its integrated business model encompassing the entire spectrum of the pharmaceutical value chain, from research and development and product conceptualisation to manufacturing and sales.

It added that Kotra has superior margins on its original brand manufacturing business model versus low-margin contract manufacturing.

Kenanga Research shared that Nova’s 4Q25 continued to show weakness, probably due to the slow ramp-up of production at its new plant.

This will likely drag top-line contribution and hit margins due to worse-than-expected economies of scale.