Malaysia healthcare kept at Market Weight as earnings outpace revenue

Hospital revenue growth is projected at 12.4% in 2026.

Malaysia's healthcare sector maintained a Market Weight rating, with hospital revenue growth projected at 12.4% in 2026 and 9.8% in 2027.

UOB Kay Hian said earnings growth is outpacing revenue at 13.6% and 14.9%, respectively.

The brokerage cited three near-term risks. First, rupiah depreciation combined with a 6% service tax on foreign patients is raising treatment costs for Indonesian medical tourists, who make up roughly 70% of Malaysia's health tourism base.

UOB expects the impact to stay contained given healthcare's price-insensitive demand and Malaysia's positioning as a cheaper alternative to Singapore.

Second, Middle East conflict-driven pharmaceutical cost inflation has been uneven, with sharp spikes limited mainly to paracetamol, up over 50%.

Hospitals have buffered against this by stockpiling inventory and entering into early supply contracts.

Moreover, patients from the Middle East account for under 5% of Malaysia's foreign healthcare tourists.

Third, Diagnosis-Related Group pricing, becoming commercially relevant from 2027 under the Base Medical and Health Insurance/Takaful framework, should have a gradual rather than abrupt earnings impact, with larger players like IHH and KPJ well positioned given scale.

Amongst sector picks: KPJ Healthcare trades at 34.3x 2026F PE and 31.3x 2027F PE. IHH Healthcare trades at 33.3x/29.0x.

Alpha IVF is forecast to see earnings contract 7% in financial year 2026 before rebounding 23.8% in FY 2027, as new centres in Sabah, Manila, Johor, Northern Luzon and Jakarta reach breakeven.

Duopharma Biotech is projected to post profit-after-tax growth of 17.1% in 2026 and 8.6% in 2027, backed by a newly awarded $55.3m (RM225m) government insulin contract.

The Malaysian healthcare sector trades at 33.9x PE against a historical mean of 32.7x. UOB named KPJ as its preferred exposure within hospitals, citing a multi-year growth runway from brownfield expansions.