Rising healthcare expenditure …
Total health expenditure in Malaysia grew at a CAGR of 12.9% to RM35.1bnbetween 2000 and 2008, supported by: 1) higher Government and private sector spending; 2) growing population;and 3) growing personal wealth in Malaysia. Health spending as a share of GDP for the same period ranged from2.9-4.8% of GDP, while per capita spending on health rose by RM381 in 1997 to RM1,268 in 2008, representing aCAGR of 10.5% over the period. Going forward, healthcare expenditure is expected to grow by 8-10% p.a..
Private sector healthcare.
The private sector accounts for 30% of healthcare services in Malaysia but receives50% of the total healthcare expenditure. The private sector’s share of healthcare expenditure has risen at a CAGRof 13.5% from 1997-2008. In 2008, Malaysia had over 209 hospitals and 12k beds across Malaysia, mainly underlarge hospital groups including KPJ Healthcare, Pantai Holdings and Gleneagles.
Key driver - the wealth effect.
Rising income levels.
In our view, the wealth effect will be one of the primary drivers for growth inhealthcare expenditure in Malaysia. The Government has already stated its long-term plans under the NewEconomic Model to raise per capita income from US$7.6k currently to US$15k in 10 years.
Higher income levels will likely promote the awareness for better levels of healthcare.We believe this will go hand-in-hand with an increase in medical insurance coverage, resulting in: 1) shift inpatients numbers from public to private healthcare; and 2) increase in patients paying for themselves to thosecovered by medical insurance. Statistics show that insurance has increased its contribution to total nationalhealthcare expenditure from 5% (RM410m) in 1997 to 8.5% (RM2.97b) in 2008, or a CAGR of 19.7%.
Going forward, as the Government becomes increasingly conscious of the subsidies(estimated at RM8.5bn in 2006 by the Economic Planning Unit) given to the public for healthcare, we expectmore tax incentives for higher income individuals to seek healthcare services from the private sector.
The added boost will likely come from medical tourism, and Pantai, Gleneagles and KPJhave upgraded their facilities in some of their hospitals for this market. Malaysia’s medical tourism industrycould also indirectly benefit from Thailand’s political troubles.
Khazanah Nasional’s takeover of Parkway has brought the healthcare sector into the limelight.Although sceptics may dismiss the high takeover PER of 27.6x based on FY10 EPS, the aggressive takeoversuggests that there is significant growth potential for the sector, and in particular for large well-run hospital groupswith a regional foothold. Moreover, with the takeover and privatisation of Parkway, we believe there will be ascarcity premium attached to the remaining and broadly comparable hospital groups like
KPJ (OP, FV = RM4.51)
Non-medical support services, also a growth industry.
In our view, there is growing demand for non-medicalsupport services, i.e. with regards to disposal of bio-medical waste, maintenance of hospital equipment, laundry,etc.. We highlight that
Faber (OP, FV = RM3.82)
is the largest provider of such services in Malaysia under aGovernment concession which is up for renewal in Oct 2011. Nevertheless, the company has already expanded toIndia (working with Apollo group hospitals) and the United Arab Emirates.
Long-term positive outlook intact for the glove manufacturers.
Although the near-term picture for therubber glove manufacturers is negative, and there could be some earnings disappointment ahead in the upcomingquarterly results, we believe the long-term outlook for the sector remains positive given the rising awareness forhealth safety, as well as in response to disease outbreaks. Our top pick is
Kossan (OP, FV = RM5.81)
Medical insurance is a rider for life insurance.
Given the high claims ratio for medical insurance (second onlyto motor insurance), insurance companies prefer to sell medical insurance riders with life insurance policies. Ourtop pick is
Allianz (OP, FV = RM5.32)
given it has the broadest focus, with both general and life insurance.
The Wealth Effect
M a l a s i a
M A R K E T D A T E L I N E
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Yap Huey Chiang(603) firstname.lastname@example.orgPlease read important disclosures at the end of this report.
RHB ResearchInstitute Sdn Bhd
A member of theRHB Banking Group
Company No: 233327 -M
6 August 2010
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