PETALING JAYA: Pent-up demand and return of foreign patients will partially offset the declining Covid-19 revenues that Asean hospitals are facing.

       The return of foreign patients will be more meaningful in the second half of this year, but it would take a few years before foreign patient revenues reached the pre-Covid-19 levels.

       CGS-CIMB Research, which has a “neutral’’ call on the sector said its top picks include IHH Healthcare Bhd, Bangkok Chain Hospital (BCH) and Indonesia’s Siloam International Hospitals group (Silo).

       The research house has an “add’’ call on IHH with a target price of RM8.33 a share.

       In its latest report, CGS-CIMB Research said it likes IHH for its diversified operations across geographies and proven track record of growing in new markets, which puts it in a prime position to capture the growing cross-regional healthcare demands.

       As for Silo, it believed that the group would be able to deliver its earnings post Covid-19 peak.

       The research house noted that BCH is a valuation pick as “we believe that the industry has overlooked lingering Covid-19 contributions.”

       CGS-CIMB Research also believed that KPJ Healthcare Bhd and IHH will benefit from in patient volumes as Covid-19 gradually becomes endemic.

       Patient visitations at IHH’s Malaysia operations is expected to recover by 12% year-on-year (y-o-y) per annum for financial years 2022-2024 (FY22-FY24) and nearly back to pre-Covid-19 levels by FY24, with revenue intensity above pre-pandemic levels due to more complex cases undertaken.

       This should lead to Malaysia’s revenue recovering by 7.8% in FY22, 11.3% in FY23 and 12.5% in FY24 y-o-y respectively.

       As for KPJ Malaysia, patient visitations may recover by 2% y-o-y to nearly pre-pandemic levels in FY22, before growing further by 1% per annum in FY23-FY24, with revenue intensity approaching pre-pandemic levels by FY25.

       This may drive its projected revenue growth of 5.3% in FY22, 6.4% in FY23 and 6.7% in FY24 for KPJ’s Malaysia operations, added the research house.

       According to CGS-CIMB Research, hospitals in Malaysia are mainly dependent on domestic demand, as foreign patients accounted for a mere 6% of Malaysia revenue in 2019 pre-Covid-19, for private hospital groups under its coverage such as IHH Malaysia and KPJ, based on company reports and its estimates.

       Among the four Asean countries, it believed that hospital operators in Thailand are likely to see the biggest slowdown in their core net profits in FY22, followed by Singapore and Indonesia.

       It expects Malaysian hospitals to register core net profit growth.

       For FY23, CGS-CIMB Research said Thai hospitals are expected to turn in the weakest core net profit growth, followed by Singapore, Malaysia and Indonesia hospitals.

       The downside risks to its sector call include weaker-than-expected pent-up demand and the return of foreign patients heating up the competition in the sector.

       Meanwhile, the emergence of a deadlier Covid-19 variant and greater uncertainties amid the geopolitical tensions are upside risks for its call.