CGS International has an “overweight” rating on the hospital sector in Asean, as analysts Tay Wee Kuang, Kasen Prunratanamala and Jason Chandra believe the resilient demand of healthcare services, with medical tourism growth as a catalyst in the near term.
As demand for healthcare continues to grow as a result of ageing population and higher prevalence of chronic and emerging diseases, they expect patients to continue seeking affordable and quality healthcare across Asean.
“We expect Asean’s medical tourism industry revenue to grow at a CAGR of about 18% over 2023-2032, lifting its market share of the global medical tourism industry to about 40%, according to Global Markets Insights (GMI),” say the analysts.
They believe that the top three Asean tourism destinations in 2023 were Thailand, Singapore and Malaysia, generating a combined revenue of an estimated US$2.2 billion.
“While we expect Thailand’s fly-in patient revenue to grow at a slower 10% per annum over the next five years, and Singapore to stagnate, we think Malaysia could see outsized growth amid a slew of new private hospitals in the pipeline,” say the CGS analysts, while pointing out other Vietnam and Indonesia as other Asean countries that could emerge as formidable cost competitors, although pace of growth is likely back-loaded due to longer lead time needed to build infrastructure and a pool of medical professionals.
Based on research by IQVIA, Thailand and Singapore offer accessibility to high-quality healthcare services within Asean at more affordable prices compared to the West. “Based on our channel checks, foreign patients (FPs) contributed about 30% and about 21% of revenue, respectively, to Singapore and Thailand hospital operators under our coverage in FY2023,” say the analysts.
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While Thailand hospitals seek to grow their medical tourism market share with the country’s positioning as a health and wellness destination of choice in Asean, the analysts believe that Singapore hospitals, which are starting to lose out in cost competitiveness, are eyeing higher revenue-intensive treatments to attract patients with more complex healthcare treatments.
Malaysia on the other hand, experienced a 16.3% CAGR growth in its medical tourism sector over 2014-2019 to RM1.7 billion. Despite the Covid-19 pandemic, Malaysia’s medical tourism revenue hit a record RM2.3 billion in 2023 and is projected to reach RM2.5 billion in 2024, according to Malaysia Healthcare Travel Council (MHTC). With that, the analysts are projecting Malaysia to be the fastest growing medical tourism destination in the region by 2027.
While FPs only made up 5% to 10% of revenue for the Malaysia hospital operators under coverage, the analysts are aware that FP proportion can differ greatly between hospitals across states, with Penang taking the lead in FP revenue in Malaysia.
“We think the establishment of the Johor-Singapore Special Economic Zone could also draw Singapore patients as Malaysia hospitals strengthen their reputation across the region,” say the analysts.
Among other factors, the analysts think that the countries’ reputation as a destination for vacation is also key in attracting FPs, with Thailand and Singapore coming up as key tourism hubs in Asean.
Top picks
Across Asean, the analysts prefer Malaysia as its top medical tourism pick, followed by Thailand and then Singapore. “We believe that Malaysia has the most room for medical tourism to grow, especially since medical tourism only contributed about 7% of revenue for Malaysia hospital operators under our coverage as of 9MFY2024,” say the analysts.
As a matured medical tourism destination, they think that Thaialnd’s value proposition as an affordable health and wellness destination will continue to draw patients from North Asia, such as China and CLMV (Cambodia, Laos, Myanmar, and Vietnam) nations, as well as the Middle East.
Top stock picks for medical tourism exposure within the region are Bangkok Chain Hospital (BCH) and KPJ Healthcare
CGS has an “add” call and THB19.70 target price on BCH). The analysts like the stock as it has about 15% medical tourism revenue exposure as of FY2023. They believe that the group’s potential inclusion into the list of approved hospitals by the Kuwaiti government will provide significant earnings uplift, given that Kuwaiti patients made up the largest portion of its FPs in FY2019.
KPJ on the other hand has an “add” call and RM3.04 target price. The analysts like KPJ as it predominantly operates out of Malaysia, as well as its outsized y-o-y revenue growth of 22% from FP in 9MFY2024 against MHTC’s expected 11% y-o-y for FY2024.
