KUALA LUMPUR: The ongoing recovery in patient footfall in hospitals is expected to continue, which should help to offset the decline in Covid-19-related revenue, says Hong Leong Investment Bank (HLIB) Research.
Moving into 2H22, the research firm said the transition into endemicity meant Covid-related revenue such as lab tests, border screening and Covid patient treatment will continue to be on a downtrend.
However, there is expected to be a recovery in patient volumes supported by strong pent-up demand from both local and foreign patients.
"In general, hospital operators experience an uptick in patient volume after the easing of every movement control (i.e. 3Q20, 2Q21 and 4Q21) and thus far, patient volumes have been on an overall uptrend (with the exception of 1Q22, due to a spike in Covid-19 cases from the Omicron variant).
"Looking at the quarterly patient volumes, we highlight that KPJ and IHH’s Malaysia inpatient volume is still 16-19% lower than pre-pandemic level (1Q22 vs 4Q19), hence we reckon that there will be more room for patient footfall recovery in 2H22," said HLIB.
Malaysia's reopening of international borders could also help to revive the health tourism sector, which took a 53% year-on-year tumble in 2020 due to the pandemic.,
Citing the stronger-than-expected recovery in tourist arrival numbers of 2.37 million from April 1 to June 17, HLIB suggests the medical tourism sector could potentially return to pre-Covid levels ahead of the Malaysia Healthcare Travel Council’s initial targeted timeline of 2025.
On the impact of soaring inflation on pharmaceutical major Pharmaniaga, HLIB said there has yet to be an impact on the supplies and costs of active pharmaceutical ingredients while currency movements are not expected to have a huge impact due to the hedging positions.
"That said, we do caution that, should there be any increase in costs, it would be difficult for Pharmaniaga to pass it on to the government and the Group could only cushion the impact by improving its overall efficiency," it added.
HLIB favours the healthcare sector for its strong pricing power, especially for hospital operators, which it said would help players weather through the period.
"Our preferred pick for the sector is IHH Healthcare (BUY, TP: RM7.75), as we believe that the recovery in patient volume can help to mitigate the earnings shortfall arising from lower Covid-19 related revenue.
"We also like it for its strong market position in the geographies that it operates in," it added.