KUCHING: The implementation of the goods and services tax (GST) will potentially have a negative impact on private hospitals’ margins and the tax will likely cause a decline their patients’ volume.
However, pharmaceutical products are likely remain more stable despite speculations of a separation of drug prescription and distribution, analysts view.
Kenanga Investment Bank Bhd’s research arm (Kenanga Research) in a recent report, pointed out that going forward, the implementation of GST and further subsidy rationalisation programme could dampen private hospitals’ margins and volume growth.
“From our channels check, we understand that several private hospital players are expected to raise prices in order to mitigate the higher operating cost due to the implementation of GST, which could ultimately exert a negative impact on their margins.
“Generally, healthcare services operating expenses are expected to go up since they have to pay for GST on business purchases or raw material costs before selling but are unable to claim credit for the GST paid on the inputs.
“Similarly, higher prices charged by hospitals as well as further subsidy rationalisation programme could potentially dampen purchasing power of consumers leading to lower volume in patients,” it explained.
Aside from that, Kenanga Research noted that there has been speculations that the Health Ministry might prohibit doctors from dispensing drugs to their patients and hence restrict their roles to only prescribing.
“It was also reported that organisations representing doctors and pharmacists agreed, in principle, that dispensing be left to the pharmacists,” it added.
“If this materialises, pharmacy operators will be the winners of the new system as their sales should be boosted considerably.
“However, pharmaceutical players being the source suppliers are unlikely to be affected. Specifically, revenue generated by Pharmaniaga Bhd (under our coverage) is supported by government concession agreements, non-government purchasers and exports to a smaller extent,” the research firm viewed.
Kenanga Research also noted that it preferred Pharmaniaga for its defensive earnings being the sole concession holder to purchase, store, supplies and distribute approved drugs and medical products to Government hospitals and clinics nationwide, its growth exposure in the healthcare and pharmaceuticals industry supported by an ageing population, and decent dividend yield of 4.8 per cent.
“Overall, we believe that the healthcare industry in Malaysia will continue to enjoy stable growth supported by growing healthcare expenditure, rising medical insurance and aging population demographics,” the research firm said, noting that it pegged an ‘underweight’ rating on the overall sector.