KUCHING: Given the hefty valuations for the share prices of KPJ Healthcare Bhd (KPJ) and IHH Healthcare Bhd (IHH) which are traded at the high end, the healthcare sector could be poised for a de-rating in the near future.

The research team at Kenanga Investment Bank Bhd (Kenanga Research) said KPJ’s prospects remain unexciting as the company’s reported earnings in the first half of 2013 (1H13) was below the research firm’s estimates.

The research firm said the poor financial performance of KPJ in 1H13 was due to higher than expected losses incurred for its newly opened hospitals and additional costs associated with  a new college and the cost for moving to its new office.

On the contrary, Kenanga Research was upbeat on KPJ’s long term outlook as the business does not require high investment on assets and its earnings remains stable.

It noted that the driving factor for its future earnings will come from the setting up of new hospitals as well as the expansion of its existing capacity and services.

As for IHH, Kenanga Research said the company’s financial results for the first half of 2013 was slightly better than KPJ.

It observed that the growth catalyst for IHH will be its overseas venture which could have a postive impact to its earnings.

It said IHH will continue with its overseas expansion with the opening of 320-bed City International Hospital in Vietnam following its earlier planned venture into the Hong Kong market.

It noted that the strength of IHH lies with its dominant market position and superior growth potential compared with its regional peers.

The research firm believes that the healthcare provider’s recent announcement to venture into Hong Kong to build, own and operate a 500-room hospital is in line with its management strategy to expand its international presence besides the key markets that it has operations in, namely Malaysia, Singapore and Turkey.

Kenanga Research further pointed out that its foray into the Hong Kong market will provide IHH with higher return on investment compared with its hospitals venture in Malaysia and Singapore.

It added that IHH’s growth driver in the next five years will be supported by a pipeline of new beds to be delivered through new hospital developments and the expansion of its existing facilities.

The research firm revealed that for its Singapore operations, the first phase of Mount Elizabeth Novena Hospital comprising 150 of total 333 beds capacity and 13 operating theatres has started operations in July last year (2012).

It observed that the remainder of the second phase is projected to be operational in the second half of this year (2013).

As for its Malaysia’s operations, it added Parkway Pantai Limited that currently undertaking expansion projects in four hospitals namely Gleneagles Medical Centre Penang, Pantai Hospital Kuala Lumpur, Pantai Hospital Klang and Gleneagles.

Besides that, it said three greenfield projects will add an estimated 500 beds to its network by 2014.

For its hospitals venture in Turkey, Acibadem Holding is currently undertaking expansion projects in two hospitals namely  Acibadem Sistina Skopje Clinical Hospital and Acibadem Bodrum and Acibadem Maslak Hospital while Acibadem Altunizade is a greenfield developement.

Hence, with IHH’s expansion plan remains intact and long term prospects for KPJ Healthcare looks promising,

Kenanga Research believes that the healthcare industry in Malaysia will continue to enjoy stable growth supported by growing healthcare expenditure, rising medical insurance and an aging population demographic.

source:MJNnews