KUALA LUMPUR (May 9): RHB Research maintained its "overweight" stance on the healthcare sector, due to its defensive nature and the positive impact of the recovery in local and foreign patient visits.

"Meanwhile, robust drug procurement activities — on the public and private sector fronts — should underpin a healthy performance for the pharmaceutical companies we cover, amid softer demand in the over-the-counter (OTC) format," said analyst Oong Chun Sung in a note on Tuesday.

RHB Research named KPJ Healthcare its top pick, with a "buy" call and a target price (TP) of RM1.50.

Oong said the hospital operator's growth is expected to be driven by better operating efficiency, a gradual increase in contributions from the healthcare tourism (HT) segment and a 3% earnings accretion in FY2023 from the disposal of its loss-making Indonesia business.

"As we remain sanguine in our outlook for the healthcare service providers, we think KPJ’s greater domestic focus also grants it greater earnings stability," he said.

Meanwhile, he is cautiously optimistic on IHH Healthcare Bhd, as it may face challenges from ongoing nurse shortages predominantly focused on its Singapore operations, and a hyperinflationary environment in Turkey.

“Having said that, the recent normalisation of wholesale electricity prices in Turkey post normalisation of natural gas costs could offer some relief to its Turkish unit, in 2H2023,” the analyst said.

He recommended a "buy" call on IHH with a TP of RM6.90.

Oong further added that both IHH’s and KPJ’s HT segments have recovered back to pre-pandemic levels, aided by the reopening of international borders.

“We expect their revenue intensity to normalise, as patients who previously deferred their elective surgeries are expected to return for these procedures,” he said.

On the other hand, Oong expects 2023 to be a muted year for local pharmaceutical companies due to the high base of 2022.

"We do not expect to see panic purchases from consumers, as concerns over drug shortages (primarily OTC products) continue to dissipate. Nonetheless, the normalisation of raw material prices and easing supply chain bottlenecks — which should then lead to lower freight costs — should alleviate margin pressure in 2023 which, in turn, will be offset by higher electricity tariff rates and labour costs," he said.

RHB Research stayed "neutral" on Kotra Industries Bhd with a TP of RM6.26 due to the abovementioned challenges.

Meanwhile, it had a "buy" call on Duopharma Biotech Bhd, with a TP of RM1.50.

"We are mildly positive on Duopharma Biotech, underpinned by its larger exposure to the private healthcare sector (43% of 2022 revenue) which continue to see robust patient traction," he said.

At the time of writing, KPJ was unchanged at RM1.14, with a market capitalisation of RM5.16 billion. Meanwhile, IHH was up one sen or 0.17% at RM5.90, for a market capitalisation of RM51.96 billion.

Kotra Industries was unchanged at RM5.60, valuing the company at RM828.94 million. Duopharma Biotech dipped 3.36% or half a sen to RM1.44 for a market capitalisation of RM1.37 billion.