UOB Kay Hian Securities (M) Sdn. Bhd.
Date of Report: 25 June 2025

Malaysia Market Insights: Healthcare Sector Upgraded, IGB REIT Expansion, and Technical Picks for 2025

Malaysia’s equity market is abuzz with robust sector developments, strategic acquisitions, and bullish technical setups. This comprehensive market update spotlights the healthcare sector’s profitable outlook, key stock recommendations, and notable corporate moves set to shape investor sentiment in the second half of 2025.

Healthcare Sector: Upgraded to Overweight on Strong Earnings and Lower Policy Risks

Sector Overview

• The healthcare sector in Malaysia has been upgraded to OVERWEIGHT, driven by highly defensive and attractive earnings growth of 15.1% for 2025.
• Valuations are currently undemanding, trading at -1 SD to the five-year historical mean PE, offering compelling entry opportunities.
• Reduced policy risk, resilient domestic demand, and ongoing structural positives underpin the upgrade.
• Key top picks: KPJ Healthcare and Duopharma Biotech.

Policy and Regulatory Developments

• The Ministry of Health (MoH) plans to implement the first phase of the diagnosis-related group (DRG) payment system by year-end, targeting simple medical conditions. This fixed-rate model, aligned with value-based care, is not expected to significantly disrupt private hospital operations.
• A mandatory drug price display at private facilities is anticipated to have minimal impact on patient purchasing behavior. The more impactful dispensing separation policy has not yet been formally considered.
• From 1 July 2025, a 6% Sales and Services Tax (SST) will be imposed on private healthcare services for non-Malaysians. The impact is expected to be minimal, as foreign patient revenue comprises only about 6% of KPJ’s and 1% of IHH’s total revenue. Alpha IVF, which derives 50% of its revenue from foreign patients, is expected to remain resilient due to its specialized, high-end IVF services.

Sector Action and Opportunities

• The sector is insulated from external trade headwinds and global slowdown risks.
• Both IHH and KPJ are in early brownfield expansion phases, promising structural margin improvements.
• Alpha IVF is rapidly expanding regionally, and Duopharma is expected to benefit from a sharp input cost-led recovery in 2025.
• Key sector events in 2H25 include a potential insulin contract award to Duopharma, Pharmaniaga’s possible PN17 uplift, rapid gestation of KPJ’s Kuala Selangor hospital, and the completion of IHH’s Mount Elizabeth Hospital refurbishment. The anticipated listing of Sunway Healthcare in 1H26 could also boost interest in local hospital operators.

Healthcare Sector Key Picks and Financial Comparison

Company Analysis and Key Developments

KPJ Healthcare

• Undergoing a structural transformation, KPJ is shifting focus to brownfield projects and enhancing execution capabilities.
• This strategy is expected to reduce the gestation period for new greenfield hospitals, notably the KPJ Kuala Selangor, which benefits from a full suite of consultants, insurer onboarding, and a wealthy local demographic.
• Earnings are forecast to grow by 19% in 2025 and 12% in 2026, with a target price based on 33.8x 2026F PE (+1 SD above pre-pandemic five-year mean). This premium is justified by improved earnings quality and growth visibility.

Duopharma Biotech

• Duopharma is experiencing significant API (active pharmaceutical ingredients) cost savings, with prices reverting 10-20% below pandemic levels—API makes up at least 40% of COGS.
• Favourable USD/RM forex rates are expected to enhance gross margins further into 2Q25 and beyond.
• The government insulin contract, previously extended to October 2025, is likely to be retained by Duopharma despite emerging competition from Pharmaniaga. The new contract award is anticipated by late-2025 or early-2026.
• 2025 earnings are projected to surge 53% YoY, normalizing to 9% growth in 2026. Valuations trade at a steep discount (-1 SD to five-year PE mean), with a target price based on a 15.3x PE peg for 2025.

Alpha IVF Group

• Alpha IVF is accelerating its regional expansion, with two new sales offices in China and a satellite clinic in Indonesia. Another clinic in Indonesia and a full IVF facility in the Philippines will open by year-end.
• The recently launched Alhaya facility in Malaysia broke even within its first month and achieved the group’s overall fertility success rates.
• These expansion efforts are projected to drive sales growth of 16.5% in FY25 and a remarkable 26.4% in FY26.

IHH Healthcare

• IHH remains a sector heavyweight, benefiting from sector-wide tailwinds and its own brownfield expansion phase.
• The refurbishment of Mount Elizabeth Hospital is scheduled for completion in 2H25, supporting its premium healthcare positioning.
• IHH’s 2025F PE stands at 30.9x, with a target price of RM8.30, and it is well-positioned for further margin and earnings growth.

Other Healthcare Players: Regional Context

IGB REIT: Strategic Acquisition of Mid Valley Southkey Mall in Johor

• IGB REIT has announced the acquisition of Mid Valley Southkey (MVS) Mall in Johor for RM2.65 billion, marking its first foray outside the Klang Valley and boosting its portfolio value to over RM8.0 billion.
• The acquisition is funded via RM1 billion in new MTN issuance and RM1.65 billion in new IGB units at RM2.36 per unit (16.2% of the enlarged base).
• MVS Mall boasts a net lettable area of 1.53 million sq ft, a high occupancy rate of 94.98%, and anchor tenants such as SOGO, Village Grocer, GSC, and Aurum Theatre. FY24 revenue was RM268.7 million, with an NPI of RM191.6 million and a robust 71.3% NPI margin.
• Strategically positioned within the Mid Valley Southkey integrated development, the mall enjoys excellent access to Singapore via the EDL highway. Gearing is expected to rise from 21.2% to 26.5% post-acquisition, well below regulatory thresholds.
• The acquisition, a related party transaction, is targeted for completion in 4Q25 and is seen as a bargain, offering an attractive NPI yield of 7.2% and a net yield of 5.6%—higher than IGB REIT’s current dividend yield of about 5%.
• Rental rates at MVS Mall are estimated at RM13-14 psf monthly, supported by premium positioning and high occupancy. The commencement of the RTS link at end-2026 is expected to further boost Singaporean shopper inflows.
• IGB REIT’s target price is raised to RM2.51, with a 10% increase in DPU forecast for 2026/27, reflecting full-year contributions from MVS Mall.

Technical Traders’ Corner: Bullish Setups for Pentamaster Corporation and VS Industry

Pentamaster Corporation (PENTA MK)

• Technical BUY with a potential return of +19.7%.
• Last price: RM2.79 | Target prices: RM2.90, RM3.34 | Support: RM2.55 | Stop-loss: RM2.54.
• The stock has recovered above its 7- and 21-day EMAs, supported by bullish RSI and DMI crossovers, indicating strengthening momentum. The near-term outlook is positive.
• Expected timeframe: two weeks to two months.

VS Industry (VSI MK)

• Technical BUY with a potential return of +19.1%.
• Last price: RM0.81 | Target prices: RM0.895, RM0.965 | Support: RM0.75 | Stop-loss: RM0.745.
• The stock rebounded from RM0.74 support, forming bullish candles and closing higher. Positive momentum is supported by bullish MACD and DMI crossovers.
• Expected timeframe: two weeks to two months.

Market Summary and Key Statistics

• FBMKLCI Index: 1,514.29 (-0.2%)
• Malaysia Turnover (24-Jun-25): Volume: 2,532m units (-18.2%), Value: RM2,042m (+6.7%)
• Investor Participation: Foreign investors 43.3% (+3.4ppt), Local retail 17.7% (-1.8ppt), Local institution 39.1% (-1.7ppt)
• Top Trading Turnover: Malayan Banking (RM9.80, +1.3%), Tenaga Nasional (RM14.26, -0.3%), Public Bank (RM4.31, -2.5%)
• Top Gainers: D&O Green (+5.7%), Bermaz Auto (+5.5%), Nationgate Holdings (+4.8%), OSK Holdings (+4.5%), VS Industry (+3.8%)
• Top Losers: Heineken Malaysia (-5.5%), Dialog Group (-4.4%), Dayang Enterprise (-4.2%), Bumi Armada (-4.2%), KPJ Healthcare (-3.8%)
• RM/US\$: 4.24 (-1.2%) | CPO 3rd mth future: RM3,983/mt (-3.5%)

Conclusion: Attractive Opportunities Across Healthcare, REITs, and Technical Picks

The Malaysian equity market offers a robust landscape for investors in 2025, with the healthcare sector standing out for its defensive growth, undervalued multiples, and strong earnings momentum. Strategic sector upgrades, targeted acquisitions like IGB REIT’s Mid Valley Southkey Mall, and bullish technical setups in names such as Pentamaster and VS Industry create a fertile ground for discerning investors seeking both growth and value in the months ahead.