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Private healthcare sector poised for growth

Private healthcare sector poised for growth

18 Mar 2021

There is a significant room for additional hospital beds as Malaysia’s BPR stood at only 1.98 beds per 1,000 residents in 2019

The private healthcare sector in the country is expected to capitalise on the currently low hospital bed- to-total population ratio (BPR) by expanding capacity to meet a higher demand for hospital beds.

AmInvestment Bank Bhd in a note yesterday stated that there is a significant room for additional hospital beds as Malaysia’s BPR stood at only 1.98 beds per 1,000 residents in 2019, growing at a rate of 1.1% per annum in the past five years.

To compare, the average BPR for Organisation for Economic Cooperation and Development countries stood at a much higher rate of 4.7 in 2017.

“We estimate local BPR will grow to 2.02 and 2.05 in 2020 estimate and 2021 forecast (2021F) respectively. These values exclude beds at quarantine and low-risk treatment centres.

“Pandemic-related construction delays and expansion cancellations might have provided some downward pressure to BPR growth in 2020 despite a significant demand for hospital beds,” it said.

The research house further expects bed occupancy rate (BOR) to improve through 2021F as restrictions on movement are expected to loosen gradually. Pre-pandemic, the average BOR for private institutions is at 70%.

“We believe a return to such values within 2021F is improbable, as some form of movement restrictions will likely remain until the end of the year.

“However, significant improvement is expected as restrictions are expected to loosen gradually. This is based on positive vaccination effects and the government’s ability to contain Covid-19 cases at a manageable level,” it said.

AmInvestment projects the average local BOR of private healthcare providers to rise progressively from 39% in the first quarter of 2021 (1Q21) to 59% in 4Q21.

The hospital pipeline is expected to remain muted, however, with only three new hospitals slated to open within the next three years.

They are KPJ Healthcare Bhd’s Kinrara Health Centre slated for completion in 2Q21, Damansara II Specialist Hospital (1Q22), and Sunway Healthcare Group’s Seberang Jaya Medical Centre (2022).

“KPJ reached the closing stage of its more aggressive expansion phase, switching its focus to upgrading bed capacity in preexisting hospitals as well as setting up ambulatory centres.

“We believe that IHH Healthcare Bhd is following a similar route as it is more in line with its pursuit for organisational efficiency. Only Sunway seems to be pursuing greenfield hospital expansion, with six hospitals mentioned in its expansion plans,” it said.

AmInvestment has maintained an ‘Overweight’ call on the sector with its sector pick being IHH Healthcare with a ‘Buy’ call at an unchanged fair value of RM6.26.

The research firm attributed the sectoral call to recovering patient volumes, the addition of hospital beds and a shift in focus by healthcare providers from greenfield hospital development to quicker-yield- ing and lower-cost alternatives.

AmInvestment’s valuation on IHH Healthcare is based on discounted cashflow with a weighted average cost capital of 7%.

“On the local front, we view its push to develop centres of excellence, outreach attempts to the middle-class population and cluster-strategy benefits as positive drivers to growth.

“IHH Healthcare’s international outlook is also positive, given the strong recovery in patient volume and encouraging performance of Gleneagles Hospital Hong Kong,” it said.

IHH Healthcare is also looking to transform its “hub hospitals” — those located in highly populated cities — into centres of excellence to deepen the level of service it can offer to its customers.

“Centres of excellence supply specialised expertise and related resources focusing on particular medical areas while maintaining the quality of services in more general medical areas.

“We view this as a positive development, given its potential to draw higher-paying foreign patients, much like in Singapore,” AmInvestment said.

The initiative is in line with IHH Healthcare’s ongoing cluster strategy since it is able to take advantage of the resultant efficiencies to offset the higher organisational and resource requirements necessary to run such centres.

“IHH Healthcare is planning to extend its geographical outreach by widening the range of services provided by its “spoke hospitals” — hospitals in less populous areas.

“It intends to provide a one-stop-shop for more general ailments, while leaving the more complex cases for hub hospitals to handle,” it said.

Source: The Malaysian Reserve

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