Friday 29 Mar 2024
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WHILE the weaker ringgit is seen as a boon for medical tourists to Malaysia, its impact on listed private hospital operators, namely IHH Healthcare Bhd and KPJ Healthcare Bhd, is seen to be muted.

IHH Healthcare (fundamental: 1.65; valuation: 1.5) operates a network of hospitals with key operations in Malaysia, Singapore and Turkey, while KPJ Healthcare (fundamental: 0.65; valuation: 1.5) is a private healthcare provider with hospitals primarily in Malaysia and Indonesia.

In its “2015 Asia-Pacific Healthcare Outlook” report released on Jan 22, Frost & Sullivan said Malaysian healthcare players should see the weakening ringgit as an opportunity to project the country’s image as a destination for medical tourism.

The consulting firm says local hospital operators should take advantage of the political unrest in Thailand as well as the strengthening of the Singapore dollar, which has made the city-state a very expensive destination for medical tourism.

Frost & Sullivan Asia-Pacific senior vice-president of healthcare Rhenu Bhuller tells The Edge that Malaysia tends to attract medical tourists who are more cost-conscious. Hence, if the quality of the medical services provided is highlighted internationally, the country could attract such patients seeking elective medical procedures or who have to pay out of pocket, she explains.

Bhuller, however, says if the hospitals purchase significant amounts of medical products and services in US dollars, their net profit could be impacted. Since last September, the ringgit has fallen 13.6% against the greenback due to concerns over the government’s financial position as crude oil prices fell. Malaysia derives a third of its revenue from oil and gas.

Meanwhile, research analysts who track IHH Healthcare and KPJ Healthcare expect the impact of the weaker ringgit on the healthcare providers to be muted.

AmResearch analyst Max Koh says given the 4.72% decline in the ringgit against the Singapore dollar since last September, it is possible that Singaporeans will come to Malaysia for treatment.

“We understand that there has been a moderation in Indonesian patients going to Singapore, given the strengthening Singapore dollar as well as the growing [healthcare] sector in Indonesia,” he adds.

Koh says IHH Healthcare will benefit from the stronger Singapore dollar as its revenue is denominated in ringgit, but it will be mitigated by the weakening lira (currency of Turkey). Thus, he expects the net impact to be neutral.

In financial year ended Dec 31, 2013 (FY2013) IHH Healthcare generated revenue of RM6.756 billion.

Its Singapore business contributed 36% of the group’s revenue, while Malaysia made up 20%. Central Eastern Europe, the Middle East and North Africa accounted for 38%.

As for KPJ Healthcare, he does not foresee much impact from the depreciating ringgit as most of its operations are domestic.

CIMB Research analyst Saw Xiao Jun concurs, saying that a weaker ringgit will, in theory, make medical tourism more attractive, as it may lower the cost of healthcare for foreigners.

However, the implementation of the Goods and Services Tax (GST) in April might just offset the impact of the weaker ringgit as medical inflation is expected to be higher this year.

According to a RHB Research report, drugs and medicines not listed under the National Essential Medicines List will be subject to GST.

“A lot of the medical tourists in Malaysia come from Indonesia and the Middle East. The Indonesian rupee has also depreciated against the US dollar while the purchasing power of patients from the Middle East could be affected by lower crude oil prices,” says Saw.

He adds that the weakened ringgit should not affect the earnings of KPJ Healthcare significantly, as medical tourists contribute less than 10% of the group’s revenue.

“There is no way to quantify the impact of the weakened ringgit as hospitals in Malaysia charge local and foreign patients the same rates. [But] we don’t expect a spike in the volume of medical tourists this year,” he says.

Bhuller estimates that on average, medical tourists make up less than 20% of the current patient load in Malaysia.

“Medical tourism is one of the areas of focus and growth, [with] the bulk of patients going to most private hospitals being locals or expatriates living in countries like Malaysia or Singapore,” she says.

According to statistics compiled by the Malaysian Healthcare Travel Council (MHTC), healthcare travellers in Malaysia more than doubled in 2013 from 2009. The data shows the number of healthcare travellers increasing for four consecutive years, rising to 770,134 in 2013 from 336,225 in 2009.

On Jan 30, the International Medical Travel Journal reported that Penang captured half of the total medical tourist arrivals in 2014.

Health Deputy Minister Datuk Seri Dr Hilmi Yahya reportedly said that daily, 1,000 foreign patients enter private hospitals in Penang for medical treatment last year. The ministry figures put medical tourism revenue at RM594 million in 2012 and RM690 million in 2013. The forecast for 2014 is RM700 million.

MHTC has set up the MHTC Concierge, a one-stop-centre that provides medical travellers with easy access to all the information needed in order to have a comfortable and fruitful stay in Malaysia, at the Penang International Airport, which serves most major airlines and connects with all major cities in Southeast Asia.

IHH Healthcare and KPJ Healthcare have a presence — through Pantai Hospital Penang and KPJ Penang Specialist Hospital respectively — in Penang.

Currently, IHH Healthcare has at least nine MHTC-registered medical providers, including Gleneagles Kuala Lumpur, and Pantai Hospitals in Cheras, Batu Pahat and Ayer Keroh. Meanwhile, KPJ Healthcare has 11 participating institutions, including KPJ Specialist Hospitals in Kajang, Klang, Ipoh and Johor.

CIMB Research’s Saw has a “hold” call on KPJ Healthcare with a target price of RM4.10. He says the company has good long-term prospects due to the rising demand for healthcare in Malaysia, but its near-term earnings may not be exciting due to its aggressive expansion plans. Among the hospitals slated to open this year are KPJ Specialist Hospital Bandar Dato’ Onn and KPJ Perlis Specialist Hospital.

AmResearch’s Koh also has a “hold” rating on KPJ Healthcare with a target price of RM3.68, as he deems the stock to be fully valued at the current price.

“KPJ’s expansion plans are on track but we expect margins to be flattish [or possibly see some pressure moving forward] as it would typically take new hospitals two to three years to break even,” he says.

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Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on February 9 - 15, 2015.

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