UOB Kay Hian (UOBKH) foresees a slowdown in the Thai healthcare sector's growth by the second half of 2022 as it believes the rapid recovery in medical tourism from pent-up travel demand may ease in Q3.
This is because the research house expects treatment demand and revenue intensity to normalise, as recreational tourism begins to recover faster in comparison.
It also notes that large hospital names such as Bangkok Chain Hospital and Chularat Hospital are currently trading at a premium, as positivity surrounding medical tourism recovery "have been largely priced in" for such defensive assets.
The research house has downgraded its sector call to "underweight" as it believes higher expenditure from increasing wages and incentive payments from inflationary pressures will put pressure on healthcare companies' profit margins.
"We expect investors to give lower premium for defensive assets as inflation hedgers as the inflation rate may have peaked and those investors have already accumulated their position and there is limited room for further increase in foreign inflow," said the analyst Waritthorn Kaewmuang.
While UOBKH has a "hold" call on Bumrungrad Hospital (BH), Kaewmuang expects the stock to have the lowest downside risk amid the market correction as he believes the stock has enjoyed stronger brand loyalty even in pre-Covid times.
The analyst said he would recommend trading BH and Bangkok Dusit Medical Services, which is also rated "hold", only during the high season of medical tourism - although he warns that investors should stay cautious on the possibility of mean-reversion due to rising expenditure and the passing of the high season.
On the other hand, the research house has downgraded its recommendation on Vibhavadi Medical Center to "sell" on widening downside and a lack of earnings growth in FY2023.