Healthcare PLCs: Navigating challenges and seizing opportunities for growth

The healthcare sector continues to be plagued by reduced patient visits and higher operating costs due to increased safety measures 


THE Malaysian healthcare industry has been one of the most dynamic and rapidly evolving sectors in the region. In recent years, the country has witnessed a remarkable growth in its healthcare sector, with the healthcare expenditure increasing year on year. 

The Malaysian healthcare industry has many public listed companies (PLCs) including hospitals, pharmaceuticals, medical equipment and healthcare insurers. These companies have been growing over the years, with most of them reporting healthy financial performance. 

However, in recent times, the healthcare industry has been heavily impacted by the Covid-19 pandemic, with many healthcare companies facing challenges such as reduced patient visits, higher operating costs and supply chain disruptions. 

In a recent report, CGS CIMB Research said the Malaysian healthcare sector is expected to recover in 2023, driven by increased demand for healthcare services and a return to normalcy as the pandemic subsides. 

The firm notes that the healthcare sector has been relatively resilient during the pandemic, with healthcare providers remaining open and operating throughout the crisis. However, the sector has faced challenges such as reduced patient visits and higher operating costs due to increased safety measures. 

In another report, Kenanga Research provides a similar outlook for the healthcare sector in Malaysia, noting that healthcare providers have been able to adapt to the pandemic by implementing telemedicine services and other digital health solutions. It expects the healthcare sector to continue to grow in the coming years, driven by an aging population and increasing demand for healthcare services. 

In terms of specific healthcare companies, CGS CIMB Research highlights KPJ Healthcare Bhd as a top pick for the sector, due to the company’s strong patient growth trajectory and potential for earnings accretion following the disposal of its overseas entities in 2023. The firm also notes that KPJ Healthcare has been less impacted by nursing staff shortages than other healthcare providers.
KPJ Healthcare is also the top pick for Kenanga Research. The research house noted that the company has a strong track record of growth and a well-diversified revenue stream. The firm notes that KPJ Healthcare’s focus on domestic operations should provide greater earnings stability compared to other healthcare providers with more exposure to overseas markets. 

Margin Compression 

RHB Research provides a more nuanced view of the healthcare sector, noting that different sub-sectors within the industry will be impacted differently by the pandemic. The firm notes that pharmaceutical companies may face margin compression risks due to spikes in active pharmaceutical ingredient (API) prices, as Chinese drug makers’ production lags behind the consumer demand surge for pharmaceutical products amid spikes in pandemic cases. 

The firm notes that Duopharma Biotech Bhd is particularly susceptible to the price increase as the cost of APIs account for 50% to 60% of its total raw material costs. Every 10% spike in API prices is expected to affect Kotra Industries Bhd and Duopharma by 3% and 5%-6%, respectively. However, the earnings impact is expected to be minimal, as cost spikes may not happen as soon (earliest by the second quarter of 2023 [2Q23]), given that the major India API supplier still has four to six months of inventory. 

RHB Research also notes that the easing of Covid-19 restrictions in China is set to have a neutral-to-mild positive impact on IHH Healthcare Bhd’s China operations in terms of improving operating efficiencies. Chinese hospital bed utilisation operates at near optimal levels as it battles against a surge in new Covid-19 cases post-reopening. While losses are expected to continue narrowing sequentially, IHH remains committed in reviewing its China operations as part of its non-core asset divestment strategy. 

Overall, the healthcare industry in Malaysia is expected to recover in 2023, driven by increased demand for healthcare services and a return to normalcy as the pandemic subsides. 

Healthcare providers have been able to adapt to the pandemic by implementing telemedicine services and other digital health solutions, and companies with a greater focus on domestic operations are expected to provide greater earnings stability. However, pharmaceutical companies may face margin compression. 

IHH Healthcare 

IHH posted a 57.8% decline in its net profit for 4Q22 to RM191.3 million from RM453.6 million in 4Q21. 

The drop in earnings was due to an impairment loss of RM305.9 million in relation to the group’s assets and goodwill in China amid Covid-19 restrictions and higher net finance costs and adjustments relating to MFRS 129. 

Revenue, however, grew 8.9% to RM4.9 billion from RM4.5 billion a year ago, thanks to more local and foreign patients returning. 

For the full year ended Dec 31, 2022 (FY22), the group’s net profit fell 17% to RM1.5 billion from RM1.9 billion a year ago, despite its revenue rising 5% to RM18 billion from RM17.1 billion. 

Net profit declined due the RM1.5 billion impairment loss relating to its assets and goodwill in China, while revenue rose due to a high Covid-19 base in FY21, as well as the impact from a weaker lira and MFRS 129-related adjustments. 

Kenanga Research, which has an ‘Outperform’ call on the stock, listed three points as to why it likes the counter. First, its pricing power, as the inelastic demand of healthcare provides it with the ability to pass cost through amidst rising inflation. Second, the strong recovery in patient throughput, from both domestic and international markets as the pandemic comes to an end. The third reason is its commanding market position in the private healthcare space with presence in Malaysia, Singapore, Turkiye and Greater China. 

The reopening of China’s borders is expected to boost KPJ DSH2’s patient volumes as the hospital offers the IVF treatment that is highly sought after by Chinese patients (pic source:


KPJ’s net profit jumped more than three-fold to RM72.09 million in 4Q22 from RM20.33 million a year ago, on improved hospital activities. It was the healthcare group’s highest since it reported a net profit of RM84 million for 4Q19. 

The improved performance was supported by more hospital activities, evidenced by the increase in patient visits and bed occupancy rate. 

For FY22, KPJ’s net profit soared 214% to RM171.99 million from RM54.79 million, as revenue increased to RM2.92 billion from RM2.59 billion during the same period. 

In a note following FY22 result announcement, HLIB Research said KPJ is expected to continue benefitting from the influx of medical tourists, especially after the reopening of China’s borders. 

“Prior to the pandemic, Chinese medical tourists were the second largest contributor to the local healthcare tourism scene, making up 5.1% of calendar 2019’s healthcare traveller revenue. This will also help to boost KPJ Damansara Specialist Hospital 2’s (DSH2) patient volumes, as IVF treatment is highly sought after by the Chinese patients, and KPJ DSH2 offers this niche treatment. 

“With one of the major local insurers onboarding KPJ DSH2 in February, we can expect to see more local patients going forward. Current patient mix in KPJ DSH2 is skewed towards more foreign patients, but aims to achieve a mix of 50:50 eventually,” it said. 

RHB Research, which has a ‘Buy’ call on the stock, said it likes the group for its ample growth opportunities, anchored by its gradual expansion into the health tourism segment, benefitting from the return of foreign patient visits post-border reopening, and potential earnings accretion should the disposal of its overseas entities crystallise. 

In a report in February 2023, CGS-CIMB Research noted that KPJ has made strides in improving its sustainability reporting and has set clear sustainability goals since its first dedicated sustainability report was released for FY18. 

As the largest private hospital operator in Malaysia, it said its key material matters include patient care ethics and integrity, patient satisfaction and clinical service excellence and safety, among others. 

Since FY18, it noted that KPJ has reported continuous improvements in its customer satisfaction index from 87% in FY18 to 90.1% in FY20. In addition to direct feedback from patients, it conducts service quality management audits regularly to enhance its compliance with best practices. 

Duopharma was eyeing M&As for growth opportunities as the group aims to expand its market share in the generic drug manufacturing industry (pic source:

Duopharma Biotech 

Duopharma’s net profit for 4Q22 increased 9.19% to RM17.16 million from RM15.72 million a year ago, thanks to RM1.81 million booked as tax credit versus RM1.4 million incurred as tax expense in 4Q21. Quarterly revenue rose 4.48% to RM151.96 million from RM145.44 million in 4Q21. 

Duopharma posted a record 6.74% increase in net profit of RM70.11 million for FY22, eclipsing its previous milestone of RM65.68 million achieved last year. 

The increase in earnings was on the back of posting a record-high topline, underpinned by higher sales to the prescription pharmaceutical market and public health sector during FY22. 

Full-year revenue rose 9% to RM696.72 million from the prior record-high of RM639.18 million pencilled in FY21. 

In a report released in January 2023, RHB Research said Duopharma should benefit from a pick-up in orders from the public and private sectors, as drug procurement resumed following the full relaxation of movement restrictions in April 2022. 

A potential wildcard is a sudden spike in orders amid concerns of a raw material shortage from China, it then noted. 

Commenting on the company’s prospects in 2023, the report noted that Duopharma was eyeing merger and acquisitions (M&As) for growth opportunities as the group aims to expand its market share in the generic drug manufacturing industry. 

It said the company has seen positive synergies from its investments on two fronts. First, it entered into a product distribution agreement to distribute a range of anti-hair loss products via investment into SCM LifeScience Co Ltd. Second, its AZTherapies (AZT) investment is set to facilitate low-cost entry access to the marketing and manufacturing of a novel product for Alzheimer’s, now pending the bridging trial results by 4Q22/1Q23. AZT expects to commence talks with the US Food & Drug Administration to fast-track approvals within the next 12 months, post-trial results. 

In an environmental, social and governance comment, it said Duopharma has set a target to achieve carbon neutrality by 2023 and net-zero carbon emission by 2050. It intends to replace single-use plastic with biodegradable plastics within its operations by 2026. 

Apex Healthcare 

Apex Healthcare Bhd’s net profit for 4Q22 jumped 68.25% to RM34.84 million from RM20.7 million a year earlier, on the back of higher share of results of an associate company as well as favourable foreign exchange gain. 

Quarterly revenue increased 11.55% to RM220.49 million compared to RM197.66 million a year ago, as market demand for pharmaceuticals, consumer healthcare products and medical devices remained strong in Malaysia, Singapore and international markets. 

For FY22, Apex Healthcare’s net profit jumped 69.94% to RM100.98 million from RM59.42 million a year prior. 

Cumulative revenue rose 13.88% to RM877.74 million versus RM770.76 million, mainly due to sustained economic recovery, improved consumer confidence, timely expansion of production capacity and the rapid sourcing and supply of changing in-demand healthcare products. 

In a report released in March, BIMB Securities Research said Apex’s earnings will continue to be supported by its solid execution strategy and resilient demand for pharmaceutical products. 

Apex is an integrated pharmaceutical company with operating subsidiaries in Malaysia and Singapore, as well as offices in Vietnam and Myanmar. The company has evolved into a vertically integrated pharmaceutical group in Malaysia, and therefore, its involvement in manufacturing, marketing, distribution and retailing of pharmaceutical products. Its founder Kee Tah Peng @ Hee Teck Peng began the venture as a retail pharmacy outlet called Apex Pharmacy Pte Ltd in Melaka in the early 1960s. 

For 2023, the report said management guided that sales for flu-related medication could normalise moving forward given declining flu cases in both Malaysia and Singapore. 

“Nonetheless, we opine that Apex will continue to record resilient earnings underpinned by growing demand in the pharmaceutical industry,” it said. 

BIMB Securities said Apex’s bottomline may continue to be fuelled by the group’s key operating business, namely: 

i) Xepa (manufacturing reporting segment): In 4Q22, Xepa-Soul Pattinson (M) Sdn Bhd initiated a project costing RM5.4 million to construct two buildings at its campus located in Cheng, Melaka. The buildings will serve as expanded quality control laboratories and staff service areas to facilitate revenue growth. 

ii) Apex (distribution reporting segment): Currently the largest Malaysia’s pharmaceutical wholesaler.

iii) Abio (distribution reporting segment): To expand the group brands’ coverage, Abio has established a wholly-owned subsidiary named Abio Marketing Sdn Bhd. Its purpose is to create and oversee an additional portfolio of healthcare products under the group’s brand, with primary care focus.

iv) Straits (corporate reporting segment): Asean contract manufacturer of orthopaedic devices and currently operates its main production facility in Prai Industrial Estate. 

TMC Life Sciences is in the midst of a major expansion plan includes expanding its flagship hospital, Thomson Hospital Kota Damansara

TMC Life Sciences 

TMC Life Sciences Bhd’s net profit jumped over six times for 4Q22 to RM23.47 million from RM3.75 million driven by increased capacity and higher patient load. 

The healthcare group’s revenue for the period grew 33% to RM70.8 million from RM53.37 million. 

For FY22, its annual net profit more than doubled to RM41.39 million from RM20.25 million in FY21, while revenue grew 21% to RM243.77 million from RM201.02 million. 

TMC Life Sciences is in the midst of a major expansion plan, with significant additional capacity and capabilities coming on stream in January 2022. The plan includes expanding its flagship hospital, Thomson Hospital Kota Damansara, and developing a new integrated medical hub — Thomson Iskandar — in Johor Baru, according to its 2022 annual report. 

  • This article first appeared in The Malaysian Reserve weekly print edition