Healthcare and pharmaceutical sector
Maintain overweight: Recently, we hosted a healthcare corporate luncheon and invited representatives from the Association of Private Hospitals of Malaysia, KPJ Healthcare Bhd, the Malaysia Healthcare Travel Council, and Pemandu’s healthcare unit to present their views on the healthcare industry in Malaysia.
The key commonality is the potential prospects of healthcare in Malaysia as the “the hidden jewel”, in view of the inherent demand growth (both domestic and regional) and Malaysia’s strong cost competitiveness.
With the government’s target of becoming a developed nation by 2020, there has been an apparent change in lifestyle. We believe a rise in a society’s level of wealth will result in: (i) a natural increase in the diseases of the affluent; (ii) a rise in general healthcare awareness; (iii) a longer life expectancy; and (iv) an increase in the use of healthcare insurance. In turn, there will be an overall increase in demand for private healthcare services. This is positive for KPJ given its large hospital network across Peninsular Malaysia and Sabah and Sarawak.
We believe a key growth driver for the healthcare industry will be the healthcare travel segment. Given Malaysia’s geographical location, we see the strong potential in this growing industry underpinned by: (i) relatively lower healthcare costs; (ii) excellent healthcare services (no long queues, specialised doctors, world class facilities); and (iii) many ideal holiday destinations. We think there is further upside within this segment taking into account of: (i) a growing Asian market — population and wealth; (ii) the advantage of Malaysia being a Muslim majority country; (iii) government support; (iv) relatively stable political environment; and (v) relatively fewer natural disasters. In addition, there are other healthcare-related segments (education and care for the aged) that could be potential growth drivers for the industry.
We maintain our “overweight” call on the sector and we believe KPJ is the best proxy to the Malaysian healthcare industry, being the only major listed healthcare service provider (that offers reasonable market size and trading liquidity).
Year-to-date, KPJ’s share price has appreciated by 4.9% and outperformed the KLCI by 4.5%, validating our conviction in its defensive growth characteristics.
Despite the good share price performance, we believe KPJ is still undervalued (price-earnings ratio [PER] of 17 times, 15% discount to regional peers).
We maintain our “buy” rating on KPJ with an upgraded target price of RM5.85 pegged to a higher PER target of 20 times on CY12 earnings per share (previously RM5.27 based on 18 times CY12 earnings per share).
We believe the increased PER target is fair given the company’s: (i) defensive growth; (ii) new growth drivers from its new ventures (nursing school, aged care facilities and Indonesia); and (iii) scarcity premium listing of Integrated Healthcare Holdings Sdn Bhd (IHH) which will lead to further price discovery. — Affin IB Research, Feb 3
This article appeared in The Edge Financial Daily, February 8, 2012.
Maintain overweight: Recently, we hosted a healthcare corporate luncheon and invited representatives from the Association of Private Hospitals of Malaysia, KPJ Healthcare Bhd, the Malaysia Healthcare Travel Council, and Pemandu’s healthcare unit to present their views on the healthcare industry in Malaysia.
The key commonality is the potential prospects of healthcare in Malaysia as the “the hidden jewel”, in view of the inherent demand growth (both domestic and regional) and Malaysia’s strong cost competitiveness.
With the government’s target of becoming a developed nation by 2020, there has been an apparent change in lifestyle. We believe a rise in a society’s level of wealth will result in: (i) a natural increase in the diseases of the affluent; (ii) a rise in general healthcare awareness; (iii) a longer life expectancy; and (iv) an increase in the use of healthcare insurance. In turn, there will be an overall increase in demand for private healthcare services. This is positive for KPJ given its large hospital network across Peninsular Malaysia and Sabah and Sarawak.
We believe a key growth driver for the healthcare industry will be the healthcare travel segment. Given Malaysia’s geographical location, we see the strong potential in this growing industry underpinned by: (i) relatively lower healthcare costs; (ii) excellent healthcare services (no long queues, specialised doctors, world class facilities); and (iii) many ideal holiday destinations. We think there is further upside within this segment taking into account of: (i) a growing Asian market — population and wealth; (ii) the advantage of Malaysia being a Muslim majority country; (iii) government support; (iv) relatively stable political environment; and (v) relatively fewer natural disasters. In addition, there are other healthcare-related segments (education and care for the aged) that could be potential growth drivers for the industry.
We maintain our “overweight” call on the sector and we believe KPJ is the best proxy to the Malaysian healthcare industry, being the only major listed healthcare service provider (that offers reasonable market size and trading liquidity).
Year-to-date, KPJ’s share price has appreciated by 4.9% and outperformed the KLCI by 4.5%, validating our conviction in its defensive growth characteristics.
Despite the good share price performance, we believe KPJ is still undervalued (price-earnings ratio [PER] of 17 times, 15% discount to regional peers).
We maintain our “buy” rating on KPJ with an upgraded target price of RM5.85 pegged to a higher PER target of 20 times on CY12 earnings per share (previously RM5.27 based on 18 times CY12 earnings per share).
We believe the increased PER target is fair given the company’s: (i) defensive growth; (ii) new growth drivers from its new ventures (nursing school, aged care facilities and Indonesia); and (iii) scarcity premium listing of Integrated Healthcare Holdings Sdn Bhd (IHH) which will lead to further price discovery. — Affin IB Research, Feb 3
This article appeared in The Edge Financial Daily, February 8, 2012.
