KUALA LUMPUR (Dec 28): The healthcare sector is expected to see better prospects in 2024, driven by a robust demand for private healthcare and the pharmaceutical industry, said Kenanga Research.

In a note on Thursday, the research house reiterated its "overweight" call for the healthcare sector, citing rising affluence and an ageing population as long-term factors that support the growth of private healthcare.  

According to Kenanga Research, the demand for private healthcare will continue to gain traction in calendar year 2024 (CY2024), underpinned by growing patient throughput and higher yields from a case-mix with more acute cases.

Among the stock recommendations, Kenanga Research favoured IHH Healthcare Bhd (target price or TP: RM7) and KPJ Healthcare Bhd (TP: RM1.56), both with "outperform" ratings, as the top picks.  

The research house expected both private hospital operators to benefit from the recovery in demand for elective surgeries, better operational efficiency, cost optimisation and overhead absorption.

“We like IHH for its: (i) pricing power as the inelastic demand for private healthcare service allows providers such as IHH to pass on the higher cost amidst rising inflation, and (ii) presence in multiple markets, i.e. Malaysia, Singapore, Türkiye and Greater China,” Kenanga Research said.

“We like KPJ for its pricing power as a private healthcare provider and its strong market position locally with the largest network of 28 private hospitals. Thanks to high patient throughput, two of its new hospitals have turned Ebitda-positive while the other two only recorded small operating losses,” it added.

Commenting on the health supplements and over-the-counter (OTC) drugs segment, Kenanga Research noted that the increased health awareness among consumers, especially in the aftermath of the Covid-19 pandemic, would boost the sales of pharmaceuticals and OTC drugs.

For this segment, the research house named Kotra Industries Bhd (TP: RM6.03) and Nova Wellness Group Bhd (TP: 84 sen) as the main beneficiaries, both with "outperform" ratings.

The research house liked Kotra for its integrated business model and flagship household brands, and Nova for its new plant, widening distribution network and penetration into local public hospitals.

However, Kenanga Research remained cautious on Pharmaniaga Bhd ("underperform"; TP: 31 sen), which is still under Practice Note 17 status.

The research house cited the negative shareholders’ equity, the massive earnings per share dilution from its proposed corporate exercises, and the possibility of lower concession rates from the government as key risks for Pharmaniaga.