KUALA LUMPUR (March 7): RHB Investment Bank Bhd named KPJ Healthcare Bhd as its top pick in the healthcare sector due to its robust patient growth trajectory, lower impact from nurse shortages, and successful disposal of its loss-making Indonesian unit in the first quarter of 2023 (1Q2023). 

The research house remains upbeat on the outlook of healthcare service providers, and believes that KPJ's greater domestic focus offers better earnings visibility, it said in a note on Tuesday (March 7).

RHB has a "buy" rating on the stock, with a target price of RM1.50.

KPJ’s share price has risen 15% year-to-date. At the time of writing on Tuesday, the stock was trading up one sen or 0.88% at RM1.14 a share, giving it a market capitalisation of RM5.16 billion. 

Overall, RHB maintained its "overweight" call for the healthcare sector. 

Aside from KPJ, which delivered a 2.3% year-on-year (y-o-y) increase in patient growth rate in 4Q2022, RHB noted that IHH Healthcare Bhd also reported a 33.1% y-o-y rise buoyed by an increase in local and foreign patient visits due to the lifting of movement restrictions in April last year. 

“2022 ended with the KPJ and IHH Healthcare tourism divisions recovering to pre-pandemic levels — aided by the reopening of international borders. Moving forward, revenue intensity is expected to normalise, as patients who previously deferred their procedures are expected to return for elective surgeries,” it said.

In addition, the research house said, robust procurement activities from the public and private sectors and a surge in export sales also benefited pharmaceutical players under its coverage, namely Duopharma Biotech Bhd and Kotra Industries Bhd. 

According to RHB, Duopharma’s 2022 results beat its expectations, mainly due to an increase in export sales, and robust demand for drug restocking activities from the private and public sectors. Meanwhile, Kotra’s results for the second quarter ended Dec 31, 2022 (2QFY2023) were boosted by sustained demand for prescriptive drugs as well as a notable pickup in export sales. 

“Despite concerns of active pharmaceutical ingredient prices spiking in late-2022, both Duopharma and Kotra continued to demonstrate resilient margin performances, which we think can be largely attributed to the drug-makers’ timely average selling price adjustment.

“We [also] expect the drug restocking momentum, especially with consumer healthcare and over-the-counter products, to normalise in the second half of 2023, as concerns regarding drug shortages dissipate,” RHB added.