‘Weaker ringgit might hurt healthcare operators’

PETALING JAYA: AmInvestment Bank cautioned that the local private healthcare operators may be negatively impacted by the weakening ringgit versus the US dollar as costs of key inputs such as drugs, medical supplies and medical equipment are denominated in US dollars.

Its house projection for the ringgit/US dollar rate is RM4.12. The ringgit was trading at RM4.1690 as at 5pm today.

“On the other hand, a cheaper ringgit might boost Malaysia’s medical tourism volume. Malaysia’s medical tourists contribute close to 5% of IHH Healthcare and KPJ Healthcare revenue,” it said in a research note today.

AmInvestment is keeping its “neutral” stance on the private healthcare sector for financial year 2019, saying the growth prospects for the sector globally are positive over the long term, underpinned by an aging population, rising affluence and increasing life expectancy.

The research house said that it may upgrade its “neutral” call to “overweight” should there be a surge in patients due to outbreaks of pandemic diseases; lower-than-expected start-up losses at new hospitals; value-accretive merger and acquisitions; and a jump in medical tourists.

“In contrast, we may downgrade to ‘underweight’ should there be a significant dropout of patients from private hospitals due to economic reasons; higher-than-expected and prolonged start-up losses from new hospitals,” it noted.

AmInvestment added that the local private healthcare sector has an added catalyst, i.e. medical tourism backed by its highly competitive charges and hospitalisation costs (versus those in developed countries), a generally English-speaking population as well as various incentives provided by the government.

Additionally, it said that private healthcare operators in Malaysia are poised for a major step-up in revenues and profits from the government-backed national health insurance system.

The research house believes the scheme will force private healthcare operators to drive down their prices, but the resulting volume will support them to achieve economies of scale with a slight margin compression.

KPJ Healthcare is expected to be the prime beneficiary as the group has presence in almost every state in the country.

Nonetheless, it believes the current rich valuations have reflected the fundamentals of IHH Healthcare and KPJ Healthcare.

Source link

Leave a Reply

Your email address will not be published.