KUALA LUMPUR (July 24): RHB Investment Bank (RHB IB) has maintained its 'overweight' rating for the healthcare facilities and service sector, saying that private healthcare is set to record a stronger performance in the second half of the year (2H2024), driven by organic expansion strategies and the extension of visa-free entry for tourists from China and India.
In a sector update on Wednesday, the research house said IHH Healthcare Bhd (KL:IHH) remains its top pick for the sector, underpinned by the company's relatively steady margin profile, strategic asset location in capturing patient footfall, solid balance sheet, and more aggressive expansion plans against peers.
Health tourism
RHB IB said IHH had the largest share of the health tourism market on an absolute basis, with revenue of about RM220 million in 2023, or 11% of Malaysia’s total health tourism revenue.
The research house said this was followed by 10% for KPJ Healthcare Bhd (KL:KPJ), and 9% for Sunway Healthcare Group (SHG).
“On a relative basis, SHG had the largest share of health tourism revenue contributions at 10% of the top line (with IHH and KPJ at about 5% to 6%).
“This is due to Sunway Medical Centre’s strategic presence within the integrated Sunway City township, which is surrounded by matured residential neighbourhoods, an integrated resort, a university, hotels, shopping galleries, and commercial buildings,” the research house said.
RHB IB said its top pick is IHH, predicated by the group’s robust balance sheet (net gearing of 0.26 times versus KPJ’s 0.49 times), established medical technology infrastructure, and appetite for inorganic growth.
“IHH’s valuation remains attractive, trading at 12.2 times 2024 enterprise value/earnings before interest, taxes, depreciation and amortisation, or 0.6 standard deviation below its 15 times historical mean.
“KPJ trades at an 8% premium over IHH, versus relative valuation historical means of -14.5% for both, which we deem unjustified, given IHH’s more aggressive expansion plans to drive grow,” the research house said.