KUALA LUMPUR (March 6): RHB Investment Bank (RHB IB) Research has maintained its “overweight” rating on the healthcare facilities and services sector with KPJ Healthcare Bhd as its top pick.

In a sector update on Wednesday, the research house said it expects demand for private healthcare to be underpinned by encouraging growth from medical tourists, a growing number of non-communicable diseases, and ageing society trends.

“While the healthcare sector generally has defensive attributes, we continue to advocate for investors to lean towards domestic-centric names as these provide better earnings stability,” it said.

The research house said the key focus for KPJ will primarily hinge on implementing various key strategic initiatives (central procurement, digital transformation plan and asset optimisation) that have been announced.

“In driving its hospitals’ operating efficiency, KPJ is expecting the two remaining hospitals under gestation — KPJ Miri and Damansara Specialist Hospital 2 — to break even in Ebitda (earnings before interest, taxes, depreciation and amortisation) terms by 2024.

“As for IHH Healthcare Bhd, its growth strategy will be cemented by its bed capacity expansion plan (looking to add 4,000 more beds) over the next five years,” it said.

Meanwhile, RHB said for the drugmakers, its outlook is underpinned by rosier gross domestic product growth expectation for Malaysia in 2024, anchored by China’s positive economic dynamics.

“A benign interest rate outlook should also be supportive of risk assets.

“With that, we are positive on Kotra Industries Bhd as nutraceutical products are considered discretionary products,” it said.

RHB said KPJ remains its sector top pick, premised on its strategic rebranding and upscaling exercise, a gradual pick-up in the health tourism segment, and an improvement in operating efficiency as its hospitals under gestation are expected to achieve Ebitda-breakeven by end-2024.

“Key downside risks: Higher-than-expected operating costs, lower-than-expected patient visits and revenue intensity growth, and unfavourable changes to the drug pricing mechanism by the Ministry of Health,” it said.