Weaker ringgit to have negative impact on private healthcare sector: AmResearch

PETALING JAYA: The weaker ringgit against the US dollar is expected to have a negative impact on private healthcare operators in Malaysia, according to AmInvestment Bank Research (AmResearch), as key inputs such as drugs, medical supplies and medical equipment are typically denominated in US dollars.

For 2021, the research house projected the ringgit’s exchange rate at RM4.25 against the dollar.

On the whole, AmResearch reiterated its ‘overweight’ call on the private healthcare sector as its long-term prospects are positively underpinned by an aging population, rising affluence and increasing life expectancy.

“The local private healthcare sector has an added catalyst, that is, medical tourism backed by highly competitive charges, efficient hospitalisation costs, a generally English-speaking population and various incentives provided by the government,” it said in a report.

Nonetheless, AmResearch expects the overall earnings performance of the private healthcare sector in 2020 to be poor due to the Covid-19 pandemic, as private hospitals will suffer from the drop in medical tourists and strict border controls.

For KPJ Healthcare Bhd, AmResearch believes its net profit margin will slip to 4.8% in FY20 before recovering to 5.0% in FY21, as the group may be affected by gestational costs from new hospitals although some of the expansion plans have been delayed. For IHH Healthcare Bhd, its earning are expected to slip 13% in FY20 before climbing by 45% in FY21.

“We like IHH for its strong prospects in the private healthcare sector, and its position in the premium segment of the private healthcare sector.”

The sales mix share of medical tourists was around 3% for KPJ Healthcare Bhd and 15% for IHH Healthcare Bhd (6% in Malaysia, 26% in Singapore, 16% in Turkey and 10% in India) in 2019.

It believes inpatient volume will start to recover in the second half of the year as movement controls are eased, although a portion of patients will continue to defer non-essential cases.

“We think the net profit margins for private hospitals may decline due to lower inpatient volume, which typically commands a higher yield. Also, although private hospitals offer Covid-19 test kits, these are low-profit margin services,”

The research house reiterated its ‘buy’ calls on KPJ and IHH, with a fair value of RM1.02 and RM6.58 respectively.

source https://www.thesundaily.my/business/weaker-ringgit-to-have-negative-impact-on-private-healthcare-sector-amresearch-CJ2759664