By SHAZNI ONG / Pic By BLOOMBERG
Generic pharmaceutical producers are expected to benefit from the upcoming healthcare sector policies that is being drafted by the new administration.
Affin Hwang Capital Research, however, said in its sector update on healthcare that the new policies might shake up the overall health segment.
The research house stated that the new Pakatan Harapan government in its election manifesto had aimed to raise health expenditure from 4% of the GDP to up to 6%-7%.
However, while the rise in allocation represents a 50%- 75% increase in the healthcare expenditure, the source to the funding seems hazy for the time being.
Based on the deliberated policy changes, it said it is possible that the middle 40% of Malaysian households by income and the top 20% may pay more for outpatient treatment, while the bottom 40% (B40) could receive subsidisation from the government.
Affin Hwang said based on the indications from Health Minister Dr Dzulkefly Ahmad in a newspaper report, historical sources of funding between the public and private sectors, as well as the government’s prudent stance on fiscal policy would create the balance.
“The private and public sectors accounted for 52% and 48% of healthcare expenditure respectively in 2016. But, it may not translate to consumers across the income spectrum bearing the brunt.
“More importantly, we examine and identify the impact of three prominently deliberated healthcare policies namely the Peduli Sihat nationwide implementation, the tripling of standalone private clinics consultation fees and the monopoly breakup of pharmaceutical concession,” Affin Hwang’s research report stated.
It said while the generic pharmaceutical producers are the most likely to benefit, the sheer size of an expanded healthcare expenditure should well catalyse the sector.
The implementation of the Peduli Sihat nationwide scheme is an annual RM500 assistance to the B40 households, which additionally enables ease of access to primary healthcare services at private hospitals and clinics.
The scheme was initially slated to be implemented during the first 100 days of the Pakatan Harapan government reign.
However, other important reforms have taken into place while a new timeline on the scheme has yet to be determined.
Affin Hwang said the scheme will bring positive impact to private healthcare providers and pharmaceutical producers with a large exposure to private clinics and hospitals.
“Seeing that there are at least 2.6 million B40 households as of 2015 furnished with RM500 per household, it represents up to RM1.6 billion inflow into the private healthcare system on a best case scenario,” Affin Hwang stated.
Affin Hwang said the ceiling on consultation fees on 6,978 private clinics (versus public clinics: 2,871) as of 2014 sees a long awaited raise.
“Patients would be indifferent to both standalone and hospital clinics, but hospitals do not have the wide footprint to fully realise the potential.
Patients could either source relatively cheaper generic pharmaceuticals and/or from chain pharmacies as opposed to clinics.
“But, it represents a habitual break from purchasing medication from the doctor. That said, it could translate to similar volumes but lower margin for the average pharmaceutical producer, but generic producers could possibly benefit,” the research house stated.
Affin Hwang said the existing monopoly concession holder is most at risk as a result of the monopoly breakup of pharmaceutical concession, which is a higher form of competition to drive down procurement cost to the Health Ministry.
“Established incumbent players with dominant market share face the highest risk.
“However, its function is merely a last mile deliverer, which may not be lucrative for potential entrants.
“Based on industry observers, operating margins for the RM1.2 billion concession contract ranges between 1% and 3%. Industry players that we spoke to were consistently indifferent over the development, opining that competition is already well developed with high visibility over the tender process,” the research house said.
The research house, has therefore, maintained its ‘Overweight’ stance on the healthcare sector and selected KPJ Healthcare Bhd as its top choice due to its improved domestic outlook and attractive valuations.
Affin Hwang said KPJ’s outlook for second half of 2018 (2H18) is likely to improve further as its patient volume would see a mid-single year-on-year growth, compared to 1.2% in 1H18.
The increase is forecast on the back of a slight seasonal slump in the third quarter of 2017 attributed to the timing of the Hari Raya break and the gradual recovery in broad consumer spending.
“Meanwhile, Indonesia operations have now stabilised and are expected to see minimal losses arising from a price cap on healthcare treatment. We could possibly see developing newsflow on KPJ’s efforts to sell off its Australia age-care centre asset, Jeta Gardens (QLD) Pte Ltd,” added Affin Hwang.