Health care
Healthcare sector - Sprouting green shoots of recovery
Fri, 05-Jan-2024 10:40 am
by Kenneth Leong • Apex Research

Review

After a downbeat performance in 1H23, sentiment over the healthcare sector turns more favourable, particularly within the gloves sector which continues to narrow their losses as well as chalking in marginal profit under the financial period under review. The said improvement was largely attributable to the cost rationalisation measures undertaken in bid to streamline operations efficiency as well as signs of stability in average selling prices (ASP). Demand is also on the mend with inventories tapered with purchasers reignited minor stockpiling activities. Meanwhile, we gather that natural rubber concentrated latex price has turned fairly stable at close to US$1.20/kg towards end-2023.

Elsewhere, healthcare services and equipment players will be reinforced by the higher budget allocation under Budget 2024 which saw 13.5% yoy rise in allocation to RM41.2bn. Healthcare-related projects such as development and upgrade of hospital facilities as well as equipment aligns with the Malaysia government goal to gradually uplift public health expenditure to 5.0% of gross domestic product (GDP) bodes well. All in, Bursa Malaysia’s healthcare sector added 9.7% yoy in 2023 to close at 1,903.93 pts


Outlook 

We expect ASP for rubber gloves to remain fairly stable at approximately US$20-22/1,000 pieces in 1H2024 as pricing gap with peers from regional players narrows. Still, margins are expected to remain lukewarm as any upward in price adjustment may be met with potentially weaker demand, while the upward revision of natural gas prices are limiting margins improvement. For now, we reckon local gloves players will continue to focus onto on-going capacity rationalisation measures, while banking onto inventory replenishment from prospective purchasers. While, utilisation rate is expected to see mild uptick, moving in 1H2024, we reckon the aforementioned figure will remain a distance from pre-Covid-19 pandemic levels.

On the other hand, we note that medical tourists are returning to Malaysia towards pre-pandemic levels, supported by reopening of borders, visa free travel for Chinese nationals, improved quality healthcare and competitive pricing. Back home, the ageing population, rising healthcare awareness and improving healthcare technology will be some of the key avenue drivers for the healthcare industry.


Valuation & Recommendation 

While outlook for gloves players is turning brighter, we reckon that recent recovery in their share prices has reflected the prospects of improved fundamentals. While we do not have any top picks for the sector, we hold a favourable view of Hartalega (SELL, TP: RM2.09) due to its substantial net cash position of RM1.64bn and strong operational efficiency which able to weather further economic shocks.

Recommendation: Neutral
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