Robust outlook and resilient earnings seen in 2023 for healthcare players – Kenanga Research 

Inve$t | Market Sentiments | 16 December 2022

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According to Kenanga Research latest report, the healthcare sector can look forward to  resilient earnings in 2023, particularly among players in the private hospitals, pharmaceuticals and over-the-counter (OTC) drugs as well as immunotherapy. Growth prospects for the sector in the long-term will continue to be underpinned by an ageing population, rising affluence and growing chronic diseases across the globe such as cardiovascular, cancer and respiratory. 

The research house has an “overweight” call on the sector with its top picks, namely IHH Healthcare Bhd with a target price (TP) of RM7.20 and Kotra Industries Bhd with a TP of RM7. In the private hospitals sphere, IHH’s patient throughput growth and revenue intensity would drive 2023 earnings as demand for non-Covid related services including elective surgeries recovers.  

In 2023, it expects IHH’s revenue per in-patient growth of 10% to 15% versus an estimated 10% to 20% in 2022, while in-patient throughput growth of 10% to 15% against an estimated 12% to 25% in 2022. The group’s bed occupancy rate (Bor) is targeted at 60% to 73% in 2023 compared with an estimated 56% to 70% in 2022 for its hospitals in Malaysia, Singapore, India and Turkey. Kenanga Research also liked IHH for its pricing power adding that the inelastic demand for private healthcare service would allow the group to pass on the higher cost amid rising inflation and its presence in multiple markets such as Malaysia, Singapore, Turkey and Greater China. 

Meanwhile, KPJ Healthcare Bhd’s patient throughput is expected to grow at 12% from an estimated 26% in 2022 due to the low base effect in 2021. The research house noted that KPJ’s Bor at 66% versus an estimated 55% in 2022 would be driven by recovery in demand for its services, particularly non-Covid-related ones including elective surgeries. It liked KPJ for its pricing power as a private healthcare provider and its strong market position locally with the largest network of 28 private hospitals. 

As for health supplements and OTC drugs, the research house said the Statista Consumer Market Outlook projected the OTC pharmaceuticals market in Malaysia to grow at a compounded annual growth rate (CAGR) of 6% to an estimated RM3.2bil by 2027. This augurs well for Kotra that manufactures and sells OTC supplements and nutritional and pharmaceutical products with key flagship household brands such as Appeton, Axcel and Vaxcel. The research house likes Kotra for its integrated business model encompassing the entire spectrum of the pharmaceutical value chain. 

Meanwhile, backed by a new plant, widening distribution network and penetration into local public hospitals, Nova Wellness Group Bhd is guided for a 15% to 18% volume growth, following an average volume growth rate of 16% to 8% from FY20 to FY22. On the other hand, Pharmaniaga Bhd’s growth in 2023 will be “pedestrian” in the absence of lumpy vaccine sales. Kenanga Research expects its concession awarded by the Health Ministry to provide medical supplies to public hospitals to be renewed upon expiry in end-2022.  

For the immunotherapy segment, Kenanga Research said earnings growth of Malaysia Genomics Research Centre Bhd (MGRC) would gather momentum in 2023. This would be driven by maiden contributions from Thailand and the Middle East as MGRC ramps up its distribution network and footprint overseas for its biopharmaceutical products. The research house likes MGRC for its exclusive rights to deliver such immunotherapy treatment in the region under a long-term licensing agreement with reputable principals. In addition, it is also the leading provider of genetic sequencing and analysis in South-East Asia. 

Revised Budget 2023 to see rationalisation in opex, targeted subsidies – RHB IB 

According to RHB Investment Bank Bhd (RHB IB) in a note entitled “Global Economics and Market Strategy”, it expects some rationalisation in the government operating expenditure (opex), while a more targeted approach towards subsidies may be implemented in the revised Budget 2023. This was in view of the still-elevated living costs and inflationary pressures where the pace of the adjustment is likely to be gradual. The investment bank also said the potential revision of the development expenditure allocation might be possible, especially for new and existing projects that have yet to start the tender process. 

Any major changes to Budget 2023 might have a significant impact on RHB IB’s fiscal deficit projection, adding that it maintained its 2023 fiscal deficit projection at 5.5% of the gross domestic product (GDP) for the time being. Moving forward to 2023, it is cautiously optimistic about the country’s economic outlook and has maintained its 2023 GDP growth forecast of 4.5% year-on-year as it expects the growth to be supported by resilient domestic demand. It has also maintained its headline consumer price index inflation projection for 2023 at 3% y-o-y, driven by economic growth momentum, fuel subsidies outlook, and the movement of commodity prices. 

RHB IB has retained its overnight policy rate forecast range at 3-3.5% for 2023, anchored by factors such as a robust domestic economy, resilient inflationary pressures, as well as a potential relaxation of fuel subsidies. 


Brewer recognised for efforts in Water Conservation & Waste Management 

Heineken Malaysia Berhad (HEINEKEN Malaysia)  was recognised at the United Nations Global Compact Malaysia & Brunei (UNGCMYB) Sustainability Performance Awards 2022, winning two awards in the Sustainable Development Goals (SDG) Ambition Benchmarks Awards category. 

Heineken Malaysia was awarded for : 

SDG Ambition Benchmark 2: Net-positive water impact in water-stressed basins   

SDG Ambition Benchmark 3: Zero waste to landfill and incineration. 

Heineken Malaysia’s managing director Roland Bala said that it is an honour for Heineken Malaysia  to be recognised by UNGCMYB. In line with their Brew A Better World sustainability strategy, the organisation is committed to reaching net zero emissions in production by 2030 and the wider value chain by 2040. Heineken is also committed to working with their stakeholders towards conserving healthy watersheds. He said “We are the first company in Malaysia to have fully balanced the water used in our products since 2020 and we reached 289% of our water balancing target in 2021. The company will continue to make progress in improving the efficiency of our water consumption at our Sungei Way Brewery, with an aim to reach 2.6 litres of water for every litre of our product. These are indeed ambitious targets, nevertheless, we are committed to caring for our people and planet”. 

Roland added that in terms of waste management, the company has achieved Zero Waste to Landfill since 2017 working with partners who support to recycle or upcycle 100% of all waste generated from production. In 2021, the company generated a total of 23,834 tonnes of waste including paper cartons, glass culets, scrap metal, as well as organic waste such as spent grain and spent yeast. Heineken Malaysia is committed to continually improving the ways it converts waste to value and ensure none of its waste ends up in landfills. 

Eye On The Markets 

This week, on Friday (16Dec), the Ringgit opened at 4.4220 against the USD from 4.4140 on Monday (12Dec). Meanwhile, the Ringgit was 3.2569 to the Sing Dollar on Friday (16Dec). On Monday (12Dec), the FBM KLCI opened at 1475.61. As at Friday (16Dec) 10:00am, the FBM KLCI is down 8.26 points for the week at 1467.35. Over in US, the overnight Dow Jones Industrial Average closed down 764.13 points (-2.25%) to 33,202.22 whilst the NASDAQ shed 360.36 points (-3.23%) to 10,810.53. 

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