Friday 29 Mar 2024
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Healthcare sector
Maintain neutral:
Healthcare expenditure in Southeast Asia has grown 12.4% in compound annual growth rate (CAGR) (2010 to 2014) and is expected to grow at a double-digit rate in Malaysia, or a CAGR of 11% from 2013 to 2020.

In 2014, Malaysia recorded a total healthcare expenditure of 3.9% of gross domestic product, which is still below average and has a vast room to improve. Growth for the sector would come from higher healthcare services, pharmaceuticals and medical devices.

Aged care services in Malaysia are also booming. Based on the research from Frost & Sullivan, it is estimated that Malaysia has an appeal to 19,488 retirees from 120 countries to settle in Malaysia since 2002.

With regard to the status and timeline of the dispensing separation (DS) plan, it is still unknown and in discussion stage. We believe the DS would not materialise any time soon as the debate on the separation of drug prescription and dispensing has been ongoing since 2008 and the need for the integration of the current healthcare system to make it viable.

We maintain “neutral” on the sector. There would still be demand for healthcare which is supported by population growth, affluent community and ageing demographics. However, it lacks rerating catalyst(s) that could potentially boost earnings coupled with a rich valuation of some healthcare stocks and the competitive pressure on margin.

Within the healthcare sphere, we prefer pharmaceutical players. Our top pick remains Pharmaniaga Bhd.

Earnings drivers of the group would be: (1) Three teaching hospitals, (2) European Union Good Manufacturing certification which would provide the company with a stronger footing in the European market, (3) Patent cliff and (4) Pharmaniaga’s Indonesian arm PT Errita Pharma is expected to break even in financial year 2015.

The catalysts for the sector are: global population growth, ageing demographics, more affluent community, resilient healthcare demand, and the proliferation of medical tourism.

Risks include: political/regulatory/competitive/foreign exchange risks, the introduction of medicine price control and the implementation of the goods and services tax. — HLIB Research, Sept 4

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This article first appeared in digitaledge Daily, on September 7, 2015.

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