July 1, 2010

KPJ - Healthcare sector to grow 8%-10% per annum

Stock Name: KPJ
Company Name: KPJ HEALTHCARE BHD
Research House: RHB

KUALA LUMPUR: RHB Research expects Malaysia's healthcare sector to grow at a resilient 8% to 10% per annum despite overall solwer growth in consumer spending.

It said on Thursday, July 1 the healthsector's growth will be underpinned by 2% steady population growth; ageing population; and greater affluence.

"We anticipate higher allocations from the Government for public healthcare to benefit Faber (OP; FV = RM3.54). Recent news reports that UEM Group is looking to dispose of its 34% stake in Faber could provide trading opportunities for the stock," it said.

On consumer spending, RHB Research expected it to grow at a slower pace of 4.6% YoY in the 2H versus +5.4% YoY in the 1H, with more downside risk arising from uncertainty in government policies.

The uncertainties could especially on the cut in consumer subsidies, which could further dampen consumer spending particularly on big-ticket items.

"Expect retailers and MLM players to be most affected, while healthcare and F&B sectors would be least affected," it said.

RHB Research said higher uptake in insurance policies would benefit the private healthcare sector, such as KPJ (OP; FV = RM4.25). Together with news flow on M&A in the regional healthcare sector, we believe that KPJ deserves to be trading at a higher valuation, further narrowing its discount to regional peers' PER of 18x.

The research house's top pick for the sector is KPJ. It is keeping its Neutral stance on the sector given its Underperform call on BAT; and slower increase in consumer spending outlook coupled with uncertainties arising from the cut in consumer subsidy issue.


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