Overview: Healthcare Sector Outlook

The Malaysian healthcare sector is currently rated as “Market Weight” due to limited upside in the hospital segment. Despite forecasted earnings growth of 7.6% for 2025, elevated valuations and policy overhang weigh on the sector. However, Alpha IVF and Duopharma Biotech emerge as standout opportunities, thanks to regional expansion and cost-led recovery potential.

Alpha IVF: A Rising Star in Fertility Services

Recommendation: BUY

Target Price: RM 0.40

Current Price: RM 0.34

Alpha IVF is a top pick in the healthcare sector, offering compelling growth opportunities through regional expansion and high clinical success rates. The company operates fertility centers in Malaysia, Indonesia, and the Philippines, alongside satellite clinics in Indonesia and representative offices in China. These operations are on track to commence by the end of FY25.

The group’s Malaysia-based facility, Alhaya, launched in April 2024, broke even within its first month of operations, demonstrating Alpha IVF’s operational efficiency. The company expects robust earnings growth, with a projected three-year CAGR of 20.3% from FY24 to FY27. Its profit margins are equally impressive, averaging 30.3% for FY25-FY27.

Key catalysts for Alpha IVF include the gradual rollout of its regional operations in the Philippines and Indonesia, which are expected to drive sales growth of 16.5% in FY25 and 26.4% in FY26. The stock is pegged to a 28.0x FY25F PE, reflecting a 20% premium to its peers.

Duopharma Biotech: Positioned for a Cost-Led Recovery

Recommendation: BUY

Target Price: RM 1.39

Current Price: RM 1.25

Duopharma Biotech is set to benefit from declining active pharmaceutical ingredient (API) costs, which have reverted to pre-pandemic levels. API costs, constituting at least 40% of its cost of goods sold (COGS), are now 10-20% cheaper. This is expected to significantly bolster gross margins starting in 1Q25.

In addition, Duopharma’s forex exposure is limited to public sector sales, with the current USD/RM rate aligning closely with its previous hedge of US\$1/RM4.50. The company is also poised to retain its government insulin contract, valued at RM125 million annually, even as Pharmaniaga enters this market.

While 2024 earnings are expected to be subdued due to normalizing consumer healthcare sales and production overlap between its K1 and new K3 plant, 2025 presents a brighter outlook. The company anticipates a 42% earnings growth for 2025, driven by cost efficiencies and stable forex rates. Currently trading near -1SD of its five-year mean, Duopharma offers deep value for investors.

KPJ Healthcare: A Hold Amid Policy Uncertainty

Recommendation: HOLD

Target Price: RM 2.30

Current Price: RM 2.43

KPJ Healthcare faces a cautious outlook due to policy uncertainties surrounding the potential implementation of the diagnosis-related groups (DRG) payment system. This policy shift could impact private hospital charges and margins. Recent announcements triggered a knee-jerk sell-off, with KPJ’s share price dipping by 6.5% before recovering partially by 3.4%.

Despite this, KPJ continues to focus on its greenfield projects, with the KPJ Kuala Selangor hospital set to commence operations in 1Q25. While its earnings growth forecast of 7.6% for 2025 is decent, KPJ’s valuation at 30.8x one-year forward PE is above regional peers, making it less attractive in the short term.

IHH Healthcare: A Premium Buy

Recommendation: BUY

Target Price: RM 8.05

Current Price: RM 7.30

IHH Healthcare, another heavyweight in the sector, is well-positioned for long-term growth, with a focus on brownfield projects that enhance margins. Despite a temporary dip following policy announcements, the stock has recovered partially and remains a solid investment choice.

Trading at a forward PE of 30.5x for 2025, IHH’s valuation is at a premium compared to regional peers. However, its robust fundamentals and strategic focus on expansion justify this premium. Investors are encouraged to consider IHH for its stable growth prospects and resilience in navigating policy headwinds.

Key Events to Watch in 1H25

• Duopharma is expected to realize significant cost savings on API inputs in 1Q25.
• Pharmaniaga’s potential PN17 uplift could influence sector dynamics.
• Multiple regional clinics for Alpha IVF are set to come on-stream in 1H25.
• KPJ’s new greenfield hospital, KPJ Kuala Selangor, will become operational in 1Q25.

Conclusion

The Malaysian healthcare sector offers a mixed bag of opportunities and challenges. While hospital heavyweights like KPJ and IHH face policy headwinds, niche players like Alpha IVF and Duopharma Biotech stand out for their growth potential. Investors seeking high returns should consider these top picks while keeping an eye on evolving policy landscapes.