AmInvestment Bank maintains 'neutral' call on private healthcare sector

PETALING JAYA: AmInvestment Bank Bhd is maintaining its “neutral” call on the private healthcare sector in 2018 as it anticipates positive growth prospects for it globally over the long term, underpinned by aging population, rising affluence and increasing life expectancy.
In a note today, the research house said it may upgrade its call for the sector to “overweight” if there is a surge in patients due to outbreaks of pandemic diseases; lower-than-expected start-up losses at new hospitals; value-accretive mergers and acquisitions; and materialisation of a national health insurance system in Malaysia.
“In contrast, we may downgrade it to ‘underweight’ should there be a significant dropout of patients from private hospitals due to economic reasons, higher-than-expected and prolonged start-up losses from new hospitals.”
AmInvestment said the local private healthcare sector has the added catalyst of medical tourism, backed by highly competitive medical charges and hospitalisation costs, a generally English-speaking population and government incentives.
Over the short term, it said, local private healthcare operators will also benefit from the strengthening ringgit against the greenback, as costs of key inputs such as drugs, medical supplies and medical equipment are denominated in US dollars.
However, it said local private healthcare operators will continue to face wage inflation in 2018 and some short-term pain, such as start-up losses from new hospitals.
On a positive note, AmInvestment noted that the private healthcare operators in Malaysia are poised for a major step-up in revenues and profits if a government-backed national health insurance system becomes a reality. Under such a system, citizens can choose between seeking treatment in a public or private hospital.
The research house said while a patient seeking treatment in a private hospital will still incur a higher cost compared with a public hospital, price differences should narrow.
It added that there is a possibility that private hospitals may drop prices for certain services due to better utilisation of their equipment, with more patients switching to private hospitals from public hospitals.
“However, the biggest hurdles for a national health insurance system remain who will be contributing, by how much and the legitimacy of free riders in the system.”