Healthcare Sector Update: The Wealth Effect - 09/08/2010

PP 7767/09/2010(025354)
Malaysia RHB Research .

Institute Sdn Bhd
A member of the
RHB Banking Group
Healthcare Sector Company No: 233327 -M
MARKET DATELINE
6 August 2010
The Wealth Effect
Executive Summary
♦ Rising healthcare expenditure … Total health expenditure in Malaysia grew at a CAGR of 12.9% to RM35.1bn
between 2000 and 2008, supported by: 1) higher Government and private sector spending; 2) growing population;
and 3) growing personal wealth in Malaysia. Health spending as a share of GDP for the same period ranged from
2.9-4.8% of GDP, while per capita spending on health rose by RM381 in 1997 to RM1,268 in 2008, representing a
CAGR of 10.5% over the period. Going forward, healthcare expenditure is expected to grow by 8-10% p.a..
♦ Private sector healthcare. The private sector accounts for 30% of healthcare services in Malaysia but receives
50% of the total healthcare expenditure. The private sector’s share of healthcare expenditure has risen at a CAGR
of 13.5% from 1997-2008. In 2008, Malaysia had over 209 hospitals and 12k beds across Malaysia, mainly under
large hospital groups including KPJ Healthcare, Pantai Holdings and Gleneagles.
♦ Key driver - the wealth effect.
o Rising income levels. In our view, the wealth effect will be one of the primary drivers for growth in
healthcare expenditure in Malaysia. The Government has already stated its long-term plans under the New
Economic Model to raise per capita income from US$7.6k currently to US$15k in 10 years.
o Insurance coverage. Higher income levels will likely promote the awareness for better levels of healthcare.
We believe this will go hand-in-hand with an increase in medical insurance coverage, resulting in: 1) shift in
patients numbers from public to private healthcare; and 2) increase in patients paying for themselves to those
covered by medical insurance. Statistics show that insurance has increased its contribution to total national
healthcare expenditure from 5% (RM410m) in 1997 to 8.5% (RM2.97b) in 2008, or a CAGR of 19.7%.
o More incentives. Going forward, as the Government becomes increasingly conscious of the subsidies
(estimated at RM8.5bn in 2006 by the Economic Planning Unit) given to the public for healthcare, we expect
more tax incentives for higher income individuals to seek healthcare services from the private sector.
o Medical tourism. The added boost will likely come from medical tourism, and Pantai, Gleneagles and KPJ
have upgraded their facilities in some of their hospitals for this market. Malaysia’s medical tourism industry
could also indirectly benefit from Thailand’s political troubles.
♦ Scarcity premium. Khazanah Nasional’s takeover of Parkway has brought the healthcare sector into the limelight.
Although sceptics may dismiss the high takeover PER of 27.6x based on FY10 EPS, the aggressive takeover
suggests that there is significant growth potential for the sector, and in particular for large well-run hospital groups
with a regional foothold. Moreover, with the takeover and privatisation of Parkway, we believe there will be a
scarcity premium attached to the remaining and broadly comparable hospital groups like KPJ (OP, FV = RM4.51).
♦ Non-medical support services, also a growth industry. In our view, there is growing demand for non-medical
support services, i.e. with regards to disposal of bio-medical waste, maintenance of hospital equipment, laundry,
etc.. We highlight that Faber (OP, FV = RM3.82) is the largest provider of such services in Malaysia under a
Government concession which is up for renewal in Oct 2011. Nevertheless, the company has already expanded to
India (working with Apollo group hospitals) and the United Arab Emirates.
♦ Long-term positive outlook intact for the glove manufacturers. Although the near-term picture for the
rubber glove manufacturers is negative, and there could be some earnings disappointment ahead in the upcoming
quarterly results, we believe the long-term outlook for the sector remains positive given the rising awareness for
health safety, as well as in response to disease outbreaks. Our top pick is Kossan (OP, FV = RM5.81).
♦ Medical insurance is a rider for life insurance. Given the high claims ratio for medical insurance (second only
to motor insurance), insurance companies prefer to sell medical insurance riders with life insurance policies. Our
top pick is Allianz (OP, FV = RM5.32) given it has the broadest focus, with both general and life insurance.
Yap Huey Chiang

Please read important disclosures at the end of this report. (603) 92802179
yap.huey.chiang@rhb.com.my
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CONTENTS
EXECUTIVE SUMMARY 1
HEALTHCARE SECTOR AT A GLANCE 3
PRIVATE HEALTHCARE SECTOR IN MALAYSIA 5
NON-MEDICAL HOSPITAL SUPPORT SERVICES 8
WORLD’S LARGEST RUBBER GLOVE PRODUCER 9
VALUATIONS AND RECOMMENDATIONS 10
INDIVIDUAL COMPANIES REPORT
11
• KPJ Healthcare
13
• Faber
15
• Top Glove
17
• Kossan
19
• Adventa
21
• Hartalega
23
• Allianz Malaysia
APPENDIX 25
HEALTHCARE 2 SECTOR
HEALTHCARE SECTOR AT A GLANCE
Healthcare expenditure on the rise... Total expenditure for health in Malaysia has risen by a CAGR of 12.9% from
RM8.2bn in 2000 to RM35.1bn in 2008 (see Chart 1). This growth was supported by higher government spending as
well as increasing contribution from the private sector. The growing (and ageing) population as well as growing
personal wealth in Malaysia has also contributed to the steady growth in the local healthcare sector. Health spending as
a share of Gross Domestic Products (GDP) for the same period ranged from 2.9%-4.8%. Consequently, per capita
spending on health has also increased from RM381 in 1997 to RM1,268 in 2008, representing a CAGR of 10.5%.
Chart 1: Trend for Total Expenditure on Health (from 1997-2008)

R M ( bn) % o f GD P
40,000 6.00
35,000
5.00
30,000
4.00
25,000
20,000 3.00
15,000
2.00
10,000
1.00
5,000
- -
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Healthcare spending % to GDP
Source: Ministry of Health, Malaysia
Chart 2: Per Capita Spending On Health (from 1997-2008)
(RM )
1400
1200
1000
800
600
400
200
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
(in RM , No minal)
Supported by lifestyle changes and ageing population. As Malaysia moves towards becoming a developed nation,
our lifestyles are also rapidly changing to a predominantly urbanised way of life. Fast foods and unhealthy snacks are
gaining popularity over traditional and healthy diets as individuals become busier at work. Every year, an increasing
number of Malaysians are diagnosed with lifestyle-related diseases (such as high blood pressures, diabetes, heart
diseases and many more), which has resulted in the increase in healthcare costs.
However, we note that the life expectancy of Malaysians has risen from 64 years in 1970, to more than 73 years in
2008 (according to the World Health Organisation or WHO). This improvement has been attributed mainly to
advances in medical technology, higher personal wealth and growing awareness of the importance of healthcare and
disease prevention. As the general population lives longer, a consequence would be an increase in the number of
people diagnosed with age-related disorders such as high blood pressure, Alzheimer’s disease and heart conditions
that require intensive care and more advanced and long-term treatment. This would mean that healthcare cost will
likely continue to grow in tandem with the ageing population in the country.
HEALTHCARE 3 SECTOR
The Government contributes 50% of total health costs in Malaysia. On average, government spending on
healthcare accounts for more than 50% of total healthcare expenditure, meeting 70% of the country’s needs while
the private sector accounts for the remainder. In order for healthcare spending in Malaysia to reach the world’s
average of 9.7% of GDP (as at 2007), most of the expenditure would have to come from the private sector since
government spending for healthcare is limited to 7% of its annual budget. There is, therefore, plenty of room for
growth in Malaysia’s private healthcare sector and this presents opportunities for healthcare players e.g. KPJ and
Pantai (under Parkway) to further expand in Malaysia.
Malaysia’s healthcare sector vs. the Asean region. The Asean region’s expenditure on health stood at 3.8% of
GDP in 2007, with Vietnam recording the highest ratio at 7.1%, making it the fastest growing market in the global
healthcare industry supported by private and government spending. Singapore with the second smallest population of
5m has the highest per capita healthcare spending of US$1,148 and the highest number of hospital beds per 10,000
population of 32 beds (vs. the regional average of 20 beds). Malaysia, with a total population of 26m, had US$307
per capita healthcare spending and 18 hospital beds per 10,000 population, suggesting that there is plenty of room
for its healthcare industry to grow in order to reach the regional average of US$358 per capita expenditure and 20
hospital beds per 10,000 population.
Table 1. Healthcare Sector In The Asean Region (2007)

Malaysia Singapore Vietnam Indonesia Thailand Brunei Philippines Regonal
average
Population (m) 26 5 86 227 67 0.4 90
Total expenditure on 4.4 3.1 7.1 2.2 3.7 2.4 3.9 3.8
health as % of GDP in
2007
Per capital total 307 1,148 58 42 136 753 63 358
expenditure in 2007
(US$)
Hospital beds per 10,000 18 32 28 6 22 26 5 20
population
Source: World’s Health Statistics 2010, World Bank and World Development Indicators.
Malaysia’s public healthcare system. The public healthcare system provides 70% of the healthcare needs in
Malaysia, with over 130 hospitals and 33k beds across Malaysia (according to the Ministry of Health or MOH). In the
2010 budget, the government allocated RM14.8bn to the healthcare sector, of which we believe the bulk would go to
the construction of new government hospitals and upgrading of existing ones. Currently, Malaysia’s public healthcare
system is almost free to all as no proper screening is required. This has resulted in a long waiting list in public
hospitals, thus giving rise to the steady growth in private healthcare spending.
HEALTHCARE 4 SECTOR
PRIVATE HEALTHCARE SYSTEM – GROWTH DRIVERS
13.5% CAGR for private health expenditure. Between 1997 and 2008, the private healthcare system in Malaysia
provided 30% of healthcare in Malaysia and received 50% of the total healthcare expenditure. Private healthcare
expenditure grew at a 13.5% CAGR over the same period. Private healthcare in Malaysia is currently governed under
Private Healthcare Facilities & Services Act 1998. In 2008, Malaysia had over 209 hospitals and 12k beds situated
across Malaysia (according to the MOH factsheet). Currently, there are several private healthcare providers in
Malaysia, namely KPJ Healthcare, Pantai Holdings, Gleneagles, Sime Darby, Assunta Hospital and Mahkota Hospital.
Private sector health expenditures were mostly contributed by private household out-of-pocket-expenses (which
exclude personal and family insurance), followed by corporations and private insurance companies.
Chart 3: Total Health Expenditure By Private Spending (from Chart 4: Breakdown Of Contributions For Private Sector
1997-2008)
20000
18000
Non pr of i t , 0. 2%
16000
P r i v at e i ns ur anc e
14000
, 17. 4%
12000
10000
A l l c or por at i ons P r i v at e
8000 hous ehol d, 57. 1%
(ot her t han heal t h
i ns ur anc e), 25. 3%
6000
4000
2000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Malaysia National Health Accounts 2010 Source: Malaysia National Health Accounts 2010
Medical insurance in Malaysia. With continuously rising medical and healthcare costs, demand for medical
insurance will also increase in tandem, in our view. Medical/health insurance in Malaysia is sold as both life and non-
life products, offering additional avenues for cross selling for the insurers. For FY09, medical and health policies under
non-life insurance contributed approximately 5% of total gross premiums, or RM581m. It has steadily gained a
foothold in the overall non-life gross premiums, growing at a CAGR of 12.5% from 2002 (vs. 6.6% for total gross
premiums), increasing its contribution from 3.5% to 5%. We believe that the 12.5% CAGR for medical insurance is
understated as it does not include the premium contribution from the medical insurance riders. Moreover, statistics
show that insurance increased its contribution to total overall national healthcare expenditure from 5% (RM410m) in
1997, to 8.5% (RM2.97b) in 2008 or a CAGR of 19.7%. Table 2 shows the top 10 medical insurance (non-life) players
based on FY09 gross premiums.
Chart 5: Health Expenditure For Private Households (1997-2008)
12
10
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
OOP Insurance
HEALTHCARE 5 SECTOR
Table 2. Medical and health insurance market share by gross premium
Company Gross premiums (RMm) % market share
AIA 115.18 19.8
Berjaya Sompo 49.01 8.4
Pacific Insurance 47.15 8.1
Allianz 36.51 6.3
MSIG* 34.25 5.9
ACE Synergy 32.91 5.7
HLA* 32.15 5.5
AXA Affin 29.48 5.1
Tokio Marine 23.90 4.1
Overseas Assurance 19.94 3.4
Total 420.49 72.3
*MSIG bought over HLA's general insurance arm
Source: Insurance Services Malaysia Berhad
Although demand for medical insurance will grow, we highlight that it is not a very lucrative business. Life policies
aside, the non-life medical insurance claims ratio is one of the highest among the different businesses. Across the
board, medical claims ratio in 2007-2009 was at 76.5%, 74.7%, and 73.6% respectively. For 2009, medical claims
ratio was the second highest, behind motor (80%), while combined ratio was 103%. Despite the growth prospects,
we believe insurance companies are more (and will continue to be) cautious in writing medical policies, especially
stand-alone policies. On the flipside, insurance companies will likely continue writing medical policies as a rider for
their life insurance policies, giving a more complete protection for policy holders. We believe that going forward,
life/composite (vs. general) insurance companies will be a key player and driver, in private healthcare growth.
Stepping up on medical tourism. Medical tourism, also known as medical travel, health tourism or global
healthcare describes the rapidly growing practice of travelling across international borders to obtain healthcare, which
typically includes elective procedures as well as complex specialised surgery such as joint replacements, cardiac
surgery, dental surgery and cosmetic surgery. Although Malaysia is a relative newcomer to medical tourism as
compared to Singapore and Thailand, the standard of medical facilities in terms of price and services are already on
par with Singapore and Thailand. Five hospitals (1 public and 4 private hospital) in Malaysia have received
international accreditation of Joint Commission International (JCI) (see Appendix 1). With this international
accreditation, tourists are assured that the hospitals they are visiting adhere to the best practices of top hospitals in
the world. The government has also taken steps to promote Malaysia as a hub of medical tourism, involving 35
private hospitals in the country.
According to the Association of Private Hospitals Malaysia, the number of foreigners coming to Malaysia for medical
treatment has more than tripled since 2003. Last reported data for 2008 (Jan-Sep) showed over 282k health tourists
generating revenues of about RM222.3m (+16% yoy). And in 2007, about 72% of the foreign patients were from
Indonesia, 10% from Singapore, 5% from Japan, 3% from Europe and 3% from India. We believe the numbers
should have grown significantly since 2007-2008.
We believe medical tourism will continue to contribute positively to Malaysia’s private healthcare sector on the back of
continuing efforts by relevant authorities to ensure that healthcare providers in Malaysia are internationally accredited
and that these hospitals subscribe to a high level of clinical and service excellence, besides having superior
technology and patient-oriented facilities. Given the political instability in Thailand, we believe the country’s medical
tourism will likely suffer and Malaysia hospitals could potentially benefit as tourists switch to Malaysia to receive their
medical treatment. This would benefit the private healthcare players like KPJ, in our view.
Incentives by the government. In order to reduce the public dependence on public hospitals and to encourage
Malaysians to spend on private healthcare, the government has offered incentives to further enhance private
healthcare services in the country. The tax incentives offered include tax exemption on any capital expenditure
involving the costs of building new hospitals or acquiring new buildings for hospital premises. Private healthcare
providers are also eligible for tax exemptions on expenditure incurred in the training of medical personnel and are
exempted from service tax for medical advice and the use of medical equipment by their consumers. In line with
government efforts to promote medical tourism, any expenditure incurred in overseas promotions by private hospitals
are entitled to double tax deduction, while the private healthcare providers also receive tax-free benefits for
attendance of international medical conferences held in the country.
HEALTHCARE 6 SECTOR
M&A activities in the region. The increase in M&A activity in the healthcare sector recently, including Khazanah’s
offer to buy all remaining shares in Singapore-listed Parkway Holdings’ shares and the takeover offer of Healthscope
Ltd by a consortium of US private equity firms Carlyle Group and TPG Capital. Khazanah’s offer for Parkway values
the shares at an effective FY10-11 PER of 27.6x and 20.1x vs. the average FY10-11 PERs of 18.5x and 15.9x of
regional peers respectively. We believe Khazanah is willing to pay a big premium to gain overall control of the
company, and strengthen its foothold in the regional healthcare sector. This suggests that there is significant growth
potential for the healthcare sector in the region, which ultimately benefits the private healthcare sector in Malaysia
(e.g. KPJ).
Scarcity premium. Khazanah Nasional’s takeover of Parkway has brought the healthcare sector into the limelight.
Although sceptics may dismiss the high takeover PER of 27.6x FY10 EPS, the aggressive takeover suggests that there
is significant growth potential for the sector, and in particular for large well-run hospital groups with a regional
foothold. Moreover, with the takeover and privatisation of Parkway, we believe there will be a scarcity premium
attached to the remaining and broadly comparable hospital groups like KPJ. As it stands, regional peers average FY10
PER has moved up slightly to 18.5x, and this is excluding Parkway, from 17.9x in June (which included Parkway then).
If we include Parkway in the latest calculation, the average PER would be 19.4x.
KPJ from a regional perspective. To put KPJ Healthcare into perspective in terms of relative business position
within the regional healthcare industry as well as its financial position vis-à-vis regional peers, we have compared the
company operations with that of Parkway:
♦ Revenue/bed. Parkway’s Singapore operations clearly generate higher revenue/bed of US$272k p.a. vs. KPJ’s
revenue/bed of US$210k p.a.. This compares with Australian hospitals of US$321k p.a., Bangkok hospitals of
US$89k p.a. and India hospitals of US$20k p.a.. However, we note that the lower revenue/bed for Malaysia,
Thailand and India should be viewed against the per capita income of these countries (see Table 3). We also note
that KPJ’s revenue/bed is only around 34% and 23% lower than that of Healthscope and Parkway respectively,
although Malaysia’s per capita income is around 85% and 82% lower than that of Australia and Singapore
respectively. This suggests that KPJ is able to successfully target the mid- to high-income groups in Malaysia.
♦ KPJ’s low EV/bed is significantly undervalued vs. regional peers’ average. We estimate an EV/bed for
KPJ of US$0.29m, which is significantly undervalued vs. the average for regional peers of US$0.42m (see Table
3). This suggests that KPJ has significant room for upside in its valuation, supported by: 1) its long-term
expansion plans; 2) development of its higher-end healthcare services; and 3) rising profitability.
Table 3. Regional Per Bed Comparisons

Revenue/bed EV/bed Per Capita Income
(US$) (US$) (US$)
Australia 320,744 (Healthscope) 370,884 (Healthscope) 45,587
Singapore 271,781 (Parkway) 1,037,221 (Parkway) 37,293
Malaysia 210,159 (KPJ) 287,096 (KPJ) 6,897
Thailand 89,383 (Bangkok Chain Hospital) 159,630 (Bangkok Chain Hospital) 3,940
India 21,593 (Fortis Healthcare) 231,981 (Fortis Healthcare) 1,031
Simple average 182,732 417,362
Source: Companies’ websites, Capital IQ, Bloomberg, International Monetary Fund, World Economic Outlook Database (Apr 2010)
HEALTHCARE 7 SECTOR
NON-MEDICAL HOSPITAL SUPPORT SERVICES
A History Lesson
Privatisation of non-medical hospital support services. Although healthcare advanced steadily through the
years, its supporting services however, did not progress and improve in tandem. Healthcare and all of its supporting
services fell under the responsibility of the MOH, which managed the entire scope of hospital operations. Generally,
each hospital ran its management and housekeeping on a limited budget, with the hospital administration shouldering
much of the management, planning and execution processes and activities. This left very little room for the hospital
administration to focus on giving the best care for its patients.
Privatisation to three players. Following the privatisation of certain government agencies (e.g. Tenaga Nasional
Berhad, Pos Malaysia Berhad), in 1996 the government signed a 15-year concession agreement with three private
entities, namely Faber Medi-Serve, Pantai Medivest and Radicare, to undertake a major portion of non-medical
hospital support services, namely the Integrated Facilities Management (IFM) for all the government hospitals in the
country. Each of the concessionaires is responsible for all the five areas (see Appendix 2) of non-medical hospital
support services in their respective regions. The 15-year concession agreement, estimated at a cumulative value of
RM6bn, took effect on 28 Oct 1996.
Positive Outlook
Concessions are up for renewal. We note that the three concessions are up for renewal in Oct 2011. The renewal
applications were submitted to the Government in Oct 2009, and a final decision is expected by Oct 2010. We are
confident that the concessions will be renewed given: 1) the players are already established in their respective
regions; 2) the track record of the players has been good, with no increase in pricing of the mandated services over
the last 13 years; and 3) the Government cannot afford a breakdown in support services for the public sector
hospitals.
Overseas expansions. The three players have already begun to venture outside of their concessions, and secured
similar support services contracts with private hospitals in Malaysia, India and Middle East. The companies are also
now providing similar services such as cleaning, maintenance and waste disposal for non-medical facilities in Malaysia
as well as overseas. For example, Faber is providing cleaning services to Tesco and RapidKL as well as maintenance
services for public housing and toll roads in Abu Dhabi.
Table 4. Government Concessionaires – Non-Medical Hospital Support Services

Concessionaire Faber Medi-Serve Pantai Medivest Radicare
Owners Faber Group (listed) – owned Pantai Holdings (unlisted) – Realmild (unlisted)
by UEM Group owned by Khazanah Nasional
and Singapore’s Parkway
Holdings
Geographical Coverage Perak, Penang, Perlis, Kedah, Negeri Sembilan and Johor Federal Territory (KL and
Sabah and Sarawak Putrajaya), Selangor,
Kelantan, Terengganu and
Pahang
Number of hospitals covered 79 22 44
Services Facilities and biomedical Facilities and biomedical Facilities and biomedical
equipment maintenance equipment maintenance equipment maintenance
Clinical waste disposal Clinical waste disposal Clinical waste disposal
Cleaning Cleaning Cleaning
Linen and laundry Linen and laundry Linen and laundry
Non-concession IFM customers Private hospitals, airport (in Private hospitals and clinics, Private hospitals and medical
Hyderabad) factories, hotels, government centres
agencies
Overseas expansion UAE and India Indonesia and Sri Lanka Dubai, Sharjah and Brunei
Source: Companies
HEALTHCARE 8 SECTOR
WORLD’S LEADING RUBBER GLOVE PRODUCER
Producing 65% of global demand for latex gloves. Malaysia is the world’s leading rubber glove manufacturer,
supplying an estimated 65% of global demand for latex gloves. Rubber gloves are considered a necessity for
protection against viruses in the healthcare industry. It is also considered to be recessionary proof against economic
downturns and able to benefit from the additional usage following disease outbreaks.
Growth likely to continue. The rubber gloves industry has grown by a healthy 8-12% p.a. over the past decade,
regardless of economic cycles. In 2009, however, global consumption of rubber gloves increased by an estimated
18% to 147-148bn pieces due to the outbreak of the Influenza A (H1N1) pandemic in April 2009. As a result,
Malaysia’s glove manufacturers mostly posted record earnings last year. Key advantages that Malaysia has over its
neighbouring countries include: 1) access to latex supplies; 2) efficient support services; and 3) technical know-how.
Positive outlook still remain. As latex price reached an all time-high of RM7.72/kg on Apr 2010 and YTD, US$ has
weakened against RM by 7.7%, we believe the glove manufacturers would be able to factor these changes into selling
prices, albeit with a slight time lag. Although the near-term picture for the rubber glove manufacturers appears to
have turned more cautious, and we highlight that there could be some earnings disappointment ahead in the
upcoming quarterly results, we believe the long-term outlook for the sector remains positive given the rising
awareness for health safety, as well as in response to disease outbreaks.
Chart 5: Malaysia Rubber Glove Exports (2000-2008) Chart 6: Malaysia Rubber Glove Exports in Value (1Q00-1Q09)
RM bn
1.8
bn pcs RM bn
1.6
90.0 8.0 1.4
80.0 7.0 1.2

70.0 6.0 1.0
60.0
5.0 0.8
50.0
4.0 0.6
40.0
3.0 0.4
30.0
20.0 2.0
0.2
10.0 1.0
-
- - 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09
2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Volume (RHS)
No . o f glo ves (LHS) Vo lume (RHS)
Source: Margma Source: Margma
HEALTHCARE 9 SECTOR
VALUATIONS AND RECOMMENDATIONS
Maintain Overweight on the sector. Malaysia’s healthcare industry is expected to grow at a resilient 8-10% p.a.
driven by: 1) approximately 2% p.a. steady population growth; 2) ageing population; and 3) greater affluence and
awareness of healthcare standards to fuel strong demand for private healthcare services. In addition, the increase in
M&A activities suggests that there is significant growth potential for the healthcare sector in the region, while the exit
of Parkway from the equity market will increase the scarcity premium for other listed well-run hospital groups. We
thus remain positive on KPJ (OP, FV=RM4.51) for its leading position and its expansion plans in Malaysia’s growing
healthcare market, and narrowing discount to regional peers’ valuations.
We believe any increase in the Government’s spending on healthcare would go to the construction and expansion of
hospitals in the country. This would likely benefit Faber (OP, FV=RM3.82) given that the company provides IFM
services to government hospitals in six states across Malaysia. We also like Faber for its resilient earnings derived
from the business both locally and overseas, coupled with the possibility of further expansion through M&A.
We remain positive on the glove manufacturers in Malaysia as we expect demand for gloves to remain strong given it
is the most basic and affordable form of protection against viruses in the healthcare industry and coupled with rising
awareness of healthcare standards in highly-populated countries like China and India, which should help provide a
boost to demand for medical gloves. While there may be concerns regarding escalating raw material prices and
weakening US$ (against RM), we believe the glove manufacturers would be able to factor these into selling prices,
albeit with a slight time lag. As for the removal of subsidies for natural gas, we do not expect this to impact earnings
too significantly given that natural gas only accounts for 6-7% of total production cost. We maintain our Outperform
call for Kossan (FV = RM5.81), Adventa (FV = RM4.92) and Hartalega (FV = RM9.29) respectively. We have, however,
downgraded our call for Top Glove (FV = 6.90) to Market Perform (from Outperform), given the limited upside to our
fair value.
We also continue to be positive on Allianz (FV = RM5.32) on the back of: 1) its above-industry average premium
growth and below industry average claims ratio for its general insurance; 2) its bancassurance tie-up with CIMB; 3)
the positive growth outlook of the Malaysian life insurance industry; and 4) strong backing for its parent, Allianz SE.
Overall, we maintain our Overweight stance on the sector.
Table 5. Healthcare-Related Stocks

Price FV EPS PER PBV PCF GDY
FYE (RM/s) (RM/s) (sen) EPS Growth (%) (x) (x) (x) (%) Rec
4 Aug FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
KPJ Dec 3.57 4.51 24.0 26.6 14.6 10.7 14.8 13.4 2.5 14.2 3.9 OP
Faber Dec 2.84 3.82 26.3 26.4 15.3 0.5 10.6 10.6 2.2 6.6 2.5 OP
Kossan Dec 3.86 5.81 37.2 44.7 -0.8 20.3 10.5 8.7 2.7 8.4 1.3 OP
Hartalega^ Mar 8.18 9.29 71.5 83.6 21.0 16.9 11.4 9.8 4.0 10.5 2.9 OP
Adventa Oct 2.95 4.92 27.4 37.8 24.4 38.1 10.8 7.9 2.0 7.5 4.0 OP
Top Glove Aug 6.62 6.90 40.9 46.0 >100 12.4 15.9 14.1 3.8 12.8 3.5 MP
Allianz Dec 4.13 5.32 71.9 86.2 -7.0 19.9 5.7 4.8 1.0 6.2 0.5 OP
^ FY10-11 valuations refer to those of FY11-FY12
* Based on consensus estimates
Source: RHBRI, Bloomberg
HEALTHCARE 10 SECTOR
KPJ Healthcare
________________________________________________________________________________________
Malaysia’s Leading Private Healthcare Provider

Share Price : RM3.57
Fair Value : RM4.51
Recom : Outperform
(Maintained)
Highlights
♦ Market share of approximately 20%. KPJ is Malaysia’s largest private healthcare provider with 21 hospitals
and over 2k beds across Malaysia, currently holding approximately 20% market share. Over the past few years
KPJ has been growing steadily with an impressive 5-year revenue and net profit CAGR of 17.2% and 26.0%
respectively thanks to its well-executed and aggressive expansion strategy.
♦ Earnings drivers moving forward. Moving forward, we believe KPJ’s revenue growth drivers include:
1) The opening of at least two new hospital p.a.. KPJ targets to operate at least two new hospitals
p.a. through greenfield projects or acquisition of established hospitals. KPJ’s expansion plans ahead
would likely be in East Malaysia, East Coast or Iskandar region, where the demand for private
hospitals is still strong;
2) Expansion of existing hospitals. KPJ is looking to expand the capacity of its top performing
hospitals i.e. Ampang Puteri and Damansara Specialist by 100 beds (or +46% to be completed by
2012) and 60 beds (or +44% to be completed by end 2011) respectively; and
3) Higher utilisation rate per patient. The higher uptake of medical insurance policies in Malaysia as
well as greater health awareness has led to stronger revenue/patient and this is expected to remain
strong moving forward. We note that the company is beginning to invest in new state-of-the-art
equipment in its Klang Valley hospitals where there is demand for higher-end services. We believe as
Malaysia moves to a higher income level, supported by growth in the credit business (i.e. patient
with their own or corporate employers’ health insurance plans), demand for higher-end healthcare
services should rise accordingly, which will bolster KPJ’s profit margins.
♦ Risks to our view. The risks to KPJ’s earnings include lower-than-expected patient numbers, which could be
due to slower-than-expected economic recovery and serious disease outbreaks (such as SARS or Influenza A
H1N1) in Malaysia as well as slower-than-expected turnaround in loss-making hospitals.
♦ Forecasts is maintained. No change to our FY10-12 earnings forecast for now.
♦ Valuation and recommendation. We have raised our indicative fair value for KPJ to RM4.51 (from RM4.25),
which is based on revised target FY11 PER of 17x, after imputing a 10% discount to the higher regional peers
average of 18.5x vs. 17.9x in Jun. Given the scarcity premium after the takeover and privatisation of Parkway,
and KPJ’s leading position and expansion plans in Malaysia’s growing healthcare market, we believe the stock’s
valuation discount to regional peers should narrow. Furthermore, we note that KPJ’s long-term growth potential
is significant when compared to some regional peers’ operational and financial ratios e.g. revenue/bed and
EV/bed.
Table 1: Investment Statistics ( KPJ; 5878 ) Bloomberg Ticker: KPJ MK

FYE Dec Revenue Net Profit EPS Growth PER C.EPS* P/NTA Net gearing ROE GDY
(RMm) (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009a 1,456.4 110.9 21.0 29.5 17.0 - 3.6 0.4 17.5 3.4
2010f 1,675.5 126.9 24.0 14.1 14.9 22.0 2.9 0.3 16.7 3.9
2011f 1,861.3 140.5 26.6 10.7 13.4 24.0 2.4 0.3 15.6 4.5
2012f 2,065.4 157.6 29.8 12.2 12.0 27.0 2.0 0.2 14.9 5.0
Issued Capital (m units) 535.6 Major Shareholders (%)
Market Capitalisation (RMm) 1,912.0 Johor Corporation 50.2
Daily Trading Volume (m units) 1.1 Kumpulan Waqaf An-Nur 8.8
52-week Price Range (RM / unit) 1.21-3.79 Lembaga Tabung Haji 5.1
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus based on IBES Estimates
Table 2. Earnings Forecasts Table 3. Forecast Assumptions
FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F
Turnover 1,456.4 1,675.5 1,861.3 2,065.4 No. of hospitals 21 23 25

Turnover growth (%) 14.9 15.0 11.1 11.0 No. of beds 2,363 2,646 2,911
No of in-patients 237,943 259,358 282,700
Gross Profit 419.1 485.9 539.8 599.0 No. of out-patients 2,275,469 2,411,998 2,556,717
EV/bed (in RM) 97,326 86,898 78,998
EBITDA 188.3 217.0 241.7 264.5 EBITDA/bed (in RM) 91,846 91,330 90,891
EBITDA margin (%) 12.9 13.0 13.0 12.8 Source: Company data, RHBRI estimates
Depreciation (46.5) (48.6) (55.1) (52.9)

Net Interest (16.7) (14.1) (13.6) (13.8)
Associates 18.9 28.8 30.7 30.7
Pretax Profit 143.9 183.1 203.7 228.5

Tax (29.2) (45.8) (50.9) (57.1)
Minorities (3.9) (10.5) (12.3) (13.8)
Net Profit 110.9 126.9 140.5 157.6
Source: Company data, RHBRI estimates
Chart 1. Relative performance to FBM KLCI
KPJ
FBM KLCI
Chart 2. PE Band Chart
PER = 13x
PER = 10x
PER = 7x
abc
Faber
________________________________________________________________________________________
Expansion In Non-Concession IFM Segment Continues

Fair Value : RM3.82
Recom : Outperform
(Maintained)
Highlights
♦ IFM concession contributes 64% of FY09’s earnings... Approximately 64% of Faber’s FY09 revenue of
53% of PBT was derived from IFM concession business. While Faber’s concession for 79 hospitals in Malaysia is
due to expire in Oct 2011, the company expects to receive notification on the renewal by Oct 2010. We
believed the concession will most likely be renewed given its political links, as well as its size and geographical
reach.
♦ …while its non-concession IFM business is expanding in tandem. By leveraging on the strong presence
in the IFM concession, Faber has also been expanding its non-concession IFM business both locally and
overseas. Faber recently secured a contract with Abu Dhabi Health Services Company to maintain all
mechanical and equipment and various electrical installations and fittings at Sheikh Khalifa Medical City (Main
Campus) and affiliated buildings in the region of Abu Dhabi. The project is worth approximately RM20.4m for a
three-year period starting from 16 Aug 2010. We also note that an IFM contract in Madinat Zayed, Abu Dhabi
was renewed in May for another year with an annual value of RM57.8m, while a second contract (likely to
be#>RM100m) also in Madinat Zayed is expected to be renewed by year-end. Faber’s local non-concession IFM
business is also expanding – the company recently secured contracts worth approximately RM7m p.a. from
various vendors that include Tesco, Rapid KL and other private healthcare companies.
♦ Stronger property earnings in 2HFY10. As for the property segment, we expect stronger property earnings
to come on stream in 2HFY10 following the recognition of earnings from the launch of Taman Desa Phase 1A
DBKL in May ’10. The company has received good response from the public, and over 60% of the development
has been sold. The company plans to launch Phase 1A (Fleet) at Taman Desa as well as Phase 4 for the Laman
Rimbunan development in Cheras by 3Q2010.
♦ Risks to our view. 1) Failure to secure an extension to the concession agreement with the Government; and
2) Further delays in property launches and approvals, which could affect revenues from the property segment.
♦ Forecasts maintained. Following the 2QFY10 results (reported on 5 Aug) which were broadly in line with our
full-year expectations, we tweaked our EPS forecasts slightly by -1% for FY10, +9% for FY11 and +5.4% for
FY12.
♦ Valuations and recommendation. We continue to like Faber for its resilient earnings derived from the
concession business, together with its ongoing expansion plans for its non-concession business both locally and
overseas. Based on our revised forecasts after the 2QFY10 results, we raised our SOP based fair value to
RM3.82, (see table 2). We thus reiterate our Outperform call on the stock.
Table 1 : Investment Statistics (FAB; Code: 9008) Bloomberg: FAB MK

Net EPS Net
FYE Turnover Profit EPS Growth PER C.EPS P/NTA Gearing ROE GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (%) (%) (%)
2009 805.3 82.7 22.8 35.3 12.5 - 2.9 net cash 23.4 2.1
2010(f) 928.0 95.3 26.3 15.3 10.8 27.0 2.4 net cash 22.3 2.5
2011(f) 911.3 95.7 26.4 0.5 10.8 24.0 2.0 net cash 19.1 2.8
2012(f) 1422.3 166.1 45.7 73.5 6.2 43.0 1.6 net cash 27.2 3.0
Market Capitalisation (RMm) 1,030.9 UEM Group 34.0
Daily Trading Volume (m units) 1.2 Universal Trustee 23.4
52-week Price Range (RM / unit) 1.00-3.00
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus Based On IBES Estimates
Table 2. Sum Of Parts Calculation
Valuation basis FV (RMm) Per share (RM)
Concession IFM DCF 658.9 1.82
Non-Concession IFM 14x FY11 earnings 476.5 1.31
Property DCF 76.9 0.21
Add : Net cash (End-1QFY10) 172.8 0.48

SOP 1,385.2 3.82
Shares (m) 363.0
Table 3. Earnings Forecasts Table 4. Forecasts Assumptions

FYE Dec (RMm) FY09 FY10f FY11f FY12f FYE Dec (RM) FY10f FY11f FY12f
Turnover 805.3 928.0 911.3 1,422.3 Revenue:
Turnover growth (%) 20.2 15.2 (1.8) 56.1 Concession 544.1 562.2 543.5
EBITDA 169.0 193.6 188.7 309.7 Non-concession 304.2 349.1 383.8
EBITDA margin (%) 21.0 20.9 20.7 21.8 Property 79.6 0.0 495.0
Dep & Amort (21.0) (23.0) (24.7) (26.4)
EBIT 148.0 170.6 164.0 283.2
EBIT margin (%) 18.4 18.4 18.0 19.9 EBIT:
Net interest expense (6.7) (6.7) (6.7) (6.7) Concession 97.9 101.2 97.8
Associates (0.3) 0.0 0.0 0.0 Non-concession 54.8 62.8 69.1
Pretax Profit 140.9 164.0 157.4 276.6 Property 17.9 0.0 116.3
Tax (34.8) (41.0) (33.0) (58.1)
Minorities (23.4) (27.7) (28.6) (52.4)
Net Profit 82.7 95.3 95.7 166.1
Growth (%) 69.7 15.3 0.5 73.5
Source: Company Data, RHBRI estimates Source: Company data, RHBRI estimates
Faber
FBM KLCI
PER = 11x
PER = 7x
PER = 3x
Top Glove
________________________________________________________________________________________
World’s Largest Rubber Glove Manufacturer

Fair Value : RM6.90
Recom : Market Perform
(Downgraded)
Highlights
♦ World’s largest rubber glove manufacturer. With a capacity of over 33bn pieces, Top Glove remains the
world’s largest rubber glove manufacturer supplying approximately 22% of global consumption for rubber
gloves. Top Glove will continue to benefit from the growth in demand for rubber gloves as gloves remain a
necessity in the healthcare industry as a form of protection. Coupled with organic growth, rising healthcare
awareness, especially from developing countries, and restocking activities, these should help support demand
for rubber gloves moving forward.
♦ Capacity expansion. The commercial production for the additional eight new lines in F18 (+0.75 bn pieces
p.a.) has started in Jul 2010 and the construction for F21 has finished and is expected to commence
commercial production in Aug 2010 (+1.5 bn pieces p.a.). Top Glove is also adding 16 new lines (+1.5 bn
pieces p.a.) at its existing F7 factory in Thailand. All in, these will boost Top Glove’s annual production capacity
to 36.8bn pieces by end-FY10, from 33 bn pieces p.a. currently. As for 2012, the company is constructing a
new factory (F22) in Klang, which will house 16 new lines (+1.5 bn pieces p.a) and is expected to start
commercial production in Mar 2011. Top Glove is also putting in 32 new lines (+3.0 bn pieces p.a.) in its
recently acquired land and building in Ipoh (land and building acquired for RM4.2m). Commercial production is
expected to start by May 2011. In total, the expansion plans would increase Top Glove’s annual production
capacity to 41.3 bn pieces by end-FY11.
♦ Risks to our view. 1) Sharp surge in raw material (latex) and/or energy (natural gas) prices, which may result
in margin squeeze; 2) Appreciating RM against the US$; 3) Execution risk from capacity expansion; and 4)
Weaker-than-expected results from overseas operations.
♦ Forecast lowered by 8.1-9.3%. We have cut our FY10-12 earnings by 0.2-8.1% largely to reflect the lower
FY10-12 EBITDA margin assumptions of 17.7-18.2% (vs. 17.8-19.9%) on the back of the time lag in passing on
higher latex costs as well as weaken US$ against RM.
♦ Valuations and recommendation. Following the earnings revision, we have lowered our fair value to RM6.90
(from RM8.20) based on a revised target PER of 15x, bringing it back in line with our target market PER (vs. 17x
previously). Given the limited upside to our fair value, we downgraded the stock to Market Perform from
Outperform.
Table 1 : Investment Statistics (TOPGLOV; Code: 7113) Bloomberg: TOPG MK

Net Core Net
FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
Aug (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 1,529.1 169.1 28.7 28.7 53.7 23.1 - 2.5 net cash 22.6 4.4
2010f 2,062.3 241.5 40.9 40.9 42.8 16.2 44.0 4.1 net cash 26.4 3.4
2011f 2,342.1 271.5 46.0 46.0 12.4 14.4 48.0 3.4 net cash 24.4 4.5
2012f 2,648.1 299.9 50.8 50.8 10.5 13.0 510 2.8 net cash 22.5 4.9
Market Capitalisation (RMm) 4,087.9 Tan Sri Dr Lim & family 38.6
Daily Trading Volume (m units) 1.7 Overlook Partners Fund 5.0
52-week Price Range (RM / unit) 3.33-7.24 Matthews International 5.2
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC # Excludes EI * Consensus Based On IBES Estimates
Table 2: Earnings Forecasts Table 3: Forecast Assumptions
FYE Aug (RMm) FY09a FY10F FY11F FY12F FYE Aug FY10F FY11F FY12F
Turnover 1,529.1 2,062.3 2,342.1 2,648.1 Capacity (bn pcs p.a.) 34.4 39.9 41.8
Turnover growth (%) 54.0 34.9 13.6 13.1 Capacity utilisation (%) 85.0 85.0 90.0
Change in ASP (%) 0.1 1.0 1.0
EBITDA 288.5 382.7 411.4 434.0
EBITDA margin (%) 18.9 18.6 17.6 16.4 Source: RHBRI estimates
Depreciation (57.0) (61.1) (66.3) (72.8)
EBIT 231.5 321.6 345.1 361.2

EBIT margin (%) 15.1 15.6 14.7 13.6
Net Interest (8.5) (1.6) (1.8) (1.8)
Associates (1.0) 0.0 1.0 2.0
Pretax Profit 222.0 320.0 344.4 361.4

Tax (53.9) (73.6) (79.2) (83.1)
Minorities 1.1 (4.9) (5.3) (5.6)
Net Profit 169.1 241.5 259.9 272.7
Top Glove
FBM KLCI
PER = 20x
PER = 15x
PER = 10x
Kossan Rubber Industries
________________________________________________________________________________________
Demand For Gloves Remains Firm

Fair Value : RM5.81
Recom : Outperform
(Maintained)
Highlights
♦ Demand for gloves remains firm. Management expects demand for gloves to remain firm moving forward.
As at 1Q10, Kossan’s product mix consisted of 40% powder-free, 40% nitrile and 20% powdered gloves, as
compared to 1Q09, where nitrile gloves only accounted for 25% of sales mix. The increase in nitrile gloves
sales mix is largely due to the introduction of a new range of nitrile gloves and the narrowing price gap
between nitrile and powder-free gloves due to the sharp increase in latex prices. As a result, Kossan saw their
customers switching to nitrile gloves from powder-free and powdered gloves. Management is also not too
concerned on the issue of oversupply of gloves moving forward as they believe that most of the expansion
plans for other glove manufacturers are focusing on producing lower-end gloves while Kossan is primarily
focused on producing higher-value gloves (e.g. nitrile and powder-free). Currently, Kossan’s average utilisation
rate stands at approximately 90% and this has been consistent over the past few years despite the increase in
production capacity.
♦ Capacity expansion plans. The capacity expansion at its new factory in Jalan Meru is ongoing, and upon
completion, this new factory will house a total of 32 double-former lines. This factory currently houses 8 double-
former lines, which will start commercial production in Oct. Following that, another 8 double-former lines will be
installed and will start commercial production by 4Q10. The remaining 16 double former lines will be broken
down into two phases, where the first phase will start commercial production by 2Q11 while the 2nd phase is
expected to start commercial production by 4Q11. All-in, Kossan’s annual production capacity would increase by
20.8% from 12bn pieces currently to 14.5bn pieces by end-2010 and further by 3.5% in 2011 to 15bn pieces.
in margin squeeze; 2) Appreciating RM against the US$; and 3) Execution risk from capacity expansion.
♦ Forecast cut by 10.1-12.8%. We have cut our FY10-12 revenue projections by 1.5-4.3% to reflect the
contribution of 16 double-former lines at the new production capacity in its new factory to 4Q10 as we have
previously assumed that the 16 double-former lines will start contributing in 3Q10. At the same time, we have
also lowered our FY10-12 EBITDA margins to 16.0-18.4% from 17.7-19.2% largely to reflect the time lag in
passing on the higher latex cost as well as weakening US$. Consequently, our FY10-12 earnings forecast have
been lowered by 10.1-12.8% respectively.
♦ Valuation and recommendation. Following the earnings revision, our indicative fair value has been lowered to
RM5.81 (from RM6.70) based on unchanged target FY11 PER of 13x. We continue to like Kossan for its well-
regarded management team as well as for its ability to maintain its average capacity utilisation rate of
approximately 90%. No change to our Outperform call on the stock.
Table 1 : Investment Statistics (KOSSAN; Code: 7153) Bloomberg: KRI MK

Net Core Core EPS Net
FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 837.0 66.8 20.9 37.5 51.1 10.3 - 3.5 0.45 36.5 3.1
2010f 1035.9 118.8 37.2 37.2 -0.8 10.4 37.0 2.7 0.18 29.0 1.4
2011f 1353.4 142.9 44.7 44.7 20.3 8.6 44.0 2.1 0.04 27.0 1.6
2012f 1485.1 150.9 47.2 47.2 5.6 8.2 49.0 1.7 0.00 22.5 1.9
Market Capitalisation (RMm) 1,234.2 Kossan Holdings 51.1
Daily Trading Volume (m units) 0.9 Asian Small Companies 5.2
Main Market Listing/ Non-Trustee Stock/ Syariah-Approved Stock By The SC #Excludes EI * Consensus Based On IBES Estimates
Table 2 : Earnings Forecasts Table 3 : Forecast Assumptions
FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F
Turnover 837.0 1,035.9 1,353.4 1,485.1 Avg capacity (bn pcs) 13.8 14.7 17.7
Turnover growth (%) 19.1 23.8 30.6 9.7 Utilisation rate (%) 85.0 90.0 90.0
EBITDA 183.6 190.4 226.2 238.2

Dep & amort (34.0) (29.6) (33.3) (34.4)
EBIT 149.5 160.9 192.9 203.9

EBIT margin (%) 17.9 15.5 14.3 13.7
Net Interest (9.1) (6.8) (7.5) (8.1)
Exceptionals (53.0) 0.0 0.0 0.0
Pretax Profit 87.4 154.1 185.4 195.8

Tax (20.1) (35.3) (42.5) (44.8)
Minorities (0.5) 0.0 0.0 0.0
Net Profit 66.8 118.8 142.9 150.9
Core Net Profit 119.8 118.8 142.9 150.9
Kossan
FBM KLCI
PER = 11x
PER = 8x
PER = 5x
Adventa
________________________________________________________________________________________
Leading Surgical Gloves Manufacturer In Malaysia

Fair Value : RM4.92
Recom : Outperform
(Maintained)
Highlights
♦ Leading surgical gloves manufacturer in Malaysia. Adventa’s current product mix for gloves stands at 60%
surgical gloves and 40% dental and examination gloves, which makes the company the leading surgical gloves
manufacturer in Malaysia. The company sells 60% of its surgical gloves under its own brand and the remainder
to OEM manufacturers with Adventa holding 15% market share of the global surgical glove market. Currently
Adventa exports 35% of its gloves to Europe and 30% to US and Latin America countries, while the remainder is
shared between Middle East and Asia.
♦ Expanding its hospital products range from 70 types to 350 types in 2011. Approximately 10% of
Adventa’s revenue is derived from the distribution of hospital products to its customers worldwide. With recently-
acquired Cytotec, Adventa will venture into the distribution of home-based dialysis units to patients who prefer to
have their dialysis treatment in the comfort of their own homes. At present, Adventa’s current product mix of
hospital products stands at 70 types and management has guided that by 2011, the number could rise to 350
types. Management expects the revenue contribution from the distribution of hospital products to grow
approximately 30% by 2011, which we have already factored in our FY11 forecasts.
♦ Capacity expansion plans. Management guided that the commercial production for its new factory in Kluang,
Johor has been delayed due to the delay in shipment of some parts by the supplier. The new factory, which will
house seven new lines is now expected to be installed progressively starting from June. Following that, in 2011,
the management plans to add another five double former lines, which will increase Adventa’s annual production
capacity for dental and examination gloves to 5.5bn pieces by end-2011 from 4.5bn pieces at end-2010. Capex
guided by management is RM30m per year, which will be funded internally and via borrowings. The aggressive
capacity expansion plans are part of company’s move to take advantage of the rising awareness in hygiene
standards following the H1N1 pandemic as well as to further expand its foothold in Latin America now that the
company has obtained approval to export its gloves to Brazil.
♦ Valuation and recommendation. Our fair value is maintained at RM4.92 based on unchanged target FY11 PER
of 13x. We like Adventa for its niche position as the largest surgical glove producer in Malaysia, where the
company is looking to aggressively expand its surgical production capacity from 350m currently to 450m pairs by
end-2011. No change to our Outperform call on the stock.
Table 1 : Investment Statistics (ADV; Code: 7191) Bloomberg: ADV MK

Net Core Core EPS Core Net
FYE Turnover Profit EPS EPS Growth PER C.EPS P/NTA Gearing ROE GDY
Oct (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (%) (%) (%)
2009 282.9 17.0 11.7 22.0 86.9 13.4 - 2.4 0.4 18.1 2.8
2010f 406.3 39.7 27.4 27.4 24.4 10.8 26.0 2.1 0.5 20.1 3.6
2011f 525.6 54.9 37.8 37.8 38.1 7.8 35.0 1.7 0.5 23.8 4.3
2012f 651.7 71.8 49.5 49.5 30.8 6.0 46.0 1.4 0.4 26.0 5.1
Market Capitalisation (RMm) 445.4 Low Chin Guan & family 56.7
Daily Trading Volume (m units) 1.5 Lembaga Tabung Haji 5.2
52-week Price Range (RM / unit) 1.48-4.16 Populus Mutual Fund 6.2
Main Market Listing /Non-Trustee Stock/Syariah Approved Stock By The SC #Excluding EI * Consensus Based On IBES Estimates
Table 2 : Earnings Forecasts Table 3 : Forecast Assumptions
FYE Oct (RMm) FY09a FY10F FY11F FY12F FYE Oct FY10F FY11F FY12F
Turnover 282.9 406.3 525.6 651.7 Production

Turnover growth (%) 63.0 43.6 29.4 24.0 - surgical (m pairs) 331 430 480
- exam/dental (m pcs) 5,040 5,640 6,240
EBITDA 49.9 61.5 80.1 100.3
Depreciation (11.0) (12.2) (13.5) (14.8)
EBIT 38.9 49.3 66.6 85.5

EBIT margin (%) 13.8 12.1 12.7 13.1
Net Interest (5.6) (5.0) (5.4) (5.6)
Associates 0.0 0.0 0.0 0.0
Exceptionals (14.9) 0.0 0.0 0.0
Pretax Profit 18.4 44.3 61.1 79.9
Tax (1.5) (4.4) (6.1) (8.0)
Minorities 0.1 (0.1) (0.1) (0.1)
Net Profit 17.0 39.7 54.9 71.8
Core net profit 31.9 39.7 54.9 71.8
Adventa
FBM KLCI
PER = 20x
PER = 15x
PER = 10x
PER = 5x
Hartalega
________________________________________________________________________________________
Largest Nitrile Gloves Producer In Malaysia

Fair Value : RM9.29
Recom : Outperform
(Maintained)
Highlights
♦ Largest nitrile gloves producer in malaysia. Hartalega is currently the largest nitrile gloves producer in
Malaysia with total capacity of approximately 7bn pieces of gloves. The company predominantly manufactures
nitrile gloves, which constitutes almost 80% of its product mix.
♦ To focus on human capital and improving its processes. Moving forward, Hartalega’s growth strategy would
include: 1) growing organically by building new production capacity; 2) leveraging on its technical know-how; 3)
expanding its nitrile glove exports to more developed nations; and 4) developing human capital as well as
improving its processes to enhance its competitiveness against its peers.
♦ Capacity expansion plans. Commercial production in its new Plant 5 has begun with two new lines coming on
stream in Mar. The company expects the remaining eight lines to be completed by Nov. Hartalega also plans to
decommission all ten of its lines in Plant 1 and replace them with six new high-capacity lines. This upgrade will
effectively add another 1bn pieces to annual capacity, which will focus on producing powdered gloves in order to
take advantage of the potential surge in demand from the emerging markets like China and India. In total, both
Plant 5 and the upgrade works will raise Hartalega’s annual capacity to 10bn pieces from 7bn currently. Capex
guided by management is approximately RM120m over the next two years, which will be funded internally and
via borrowings.
♦ Forecasts maintained. We have kept our FY11-13 earnings forecasts unchanged for now.
♦ Valuation and recommendation. We maintain our fair value of RM9.29, which is based on unchanged target
FY11 PER of 13x. We like Hartalega for its niche position as the largest nitrile glove producer in Malaysia and
technological capabilities that are well ahead of its competitors. No change to our Outperform call on the stock.
Table 1 : Investment Statistics (HARTA; Code: 5168) Bloomberg: HART MK

Net Core EPS Net
FYE Turnover Profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE NDY
Mar (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2010 571.9 143.1 59.1 59.1 286.6 13.9 - 5.6 0.0 47.0 1.8
2011f 700.3 173.1 71.5 71.5 21.0 11.4 72.0 4.0 0.0 41.0 2.2
2012f 897.4 202.5 83.6 83.6 16.9 9.8 84.0 3.1 0.0 35.7 2.5
2013f 1011.1 214.7 88.6 88.6 6.0 9.2 97.0 2.5 0.0 29.7 2.8
Market Capitalisation (RMm) 1,982.1 Hartalega Industries 50.4
Daily Trading Volume (m units) 0.3 Budi Tenggara 9.0
Main Market Listing /Non- Trustee Stock / Syariah-Approved Stock By The SC # Ex-EI * Consensus Based On IBES Estimates
Table 2: Earnings Forecasts Table 3: Forecast Assumptions
FYE Mar (RMm) FY10a FY11F FY12F FY13F FYE Mar FY11F FY12F FY13F
Turnover 571.9 700.3 897.4 1,011.1 Average capacity (m pcs) 7,668.6 10,000.0 10,000.0
Turnover growth (%) 256.8 22.4 28.2 12.7 Utilisation rate (%) 86.6 81.5 83.9
Average selling price (per’000 pcs) 111.88 110.13 120.48
EBITDA 192.9 231.9 269.1 284.5 Source: RHBRI estimates
EBITDA margin (%) 33.7 33.1 30.0 28.1
Dep. & amort. (11.5) (12.7) (13.3) (13.9)
EBIT 181.3 219.1 255.8 270.6

EBIT margin (%) 31.7 31.3 28.5 26.8
Net interest expense (3.4) (2.5) (2.5) (2.0)
Associates 0.0 0.0 0.0 0.0
Exceptionals 0.0 0.0 0.0 0.0
Pretax Profit 177.9 216.6 253.3 268.6
Tax (34.7) (43.3) (50.7) (53.7)
Minorities (0.2) (0.1) (0.1) (0.1)
Net Profit 143.1 173.1 202.5 214.7

Core Net Profit 143.1 173.1 202.5 214.7
Hartalega
FBM KLCI
PER = 11x
PER = 9x
PER = 7x
PER = 5x
Allianz Malaysia
________________________________________________________________________________________
A Small But Intergral Part Of Its Portfolio

Fair Value : RM5.32
Recom : Outperform
(Maintained)
Highlights
♦ A small but integral part of its portfolio. Allianz is a composite insurer which means it has both life and
general (non-life) insurance business. As highlighted, medical or health insurance is sold under both life and non-
life policies, thus giving Allianz a full exposure towards the growth in healthcare. It is also the largest general
insurer in Malaysia by gross premiums as at FY09, with a total market share of 10%. However, in terms of medical
insurance, it is ranked 4th with a total market share of 6.3%, behind AIA (19.8%), Berjaya Sompo (8.4%) and
Pacific Insurance (8.1%). For its overall non-life portfolio, Allianz medical/health insurance contributed only 3.2%
of total gross premiums. We believe Allianz will ride the growth in healthcare through its life insurance division,
with medical insurance as a rider to market its life products.
♦ Allianz ICPS gives choice to investors. Allianz’ recently-concluded Irredeemable Convertible Preference Shares
(ICPS) issuance strengthens our positive view on the company based on three reasons: 1) the proceeds of
RM611m is partially used to fully settle its RM490m loan from parent Allianz SE; 2) the rest of proceeds will be
used to strengthen its ICAR (internal capital adequacy ratio) for both its life and general insurance divisions, giving
it more flexibility in underwriting riskier business; and 3) the ICPS increases the number of securities Allianz has
listed by 125%, thus increasing the liquidity of its shares. Moreover, the ICPS pays 20% more dividends and could
be converted to ordinary shares after 12 months. The ICPS will be listed on Bursa on 6 Aug.
♦ Risks. The risks to our forecasts include: 1) lower-than-expected premium growth; 2) jump in claims ratio; 3)
change in BNM policy that would require Allianz to further strengthen its Internal Capital Adequacy Ratio (ICAR);
and 4) the changing competitive landscape in the insurance industry due to liberalisation.
♦ We continue to be positive on the company. Despite the change in capital structure and earnings dilution
which is already factored into our forecasts, we are maintaining our positive stance on the stock. We like the
Allianz due to : 1) its above industry average premium growth and below industry average claims ratio for its
general insurance; 2) its bancassurance tie-up with CIMB; 3) the positive growth outlook of the Malaysian life
insurance industry; and 4) strong backing from its parent, Allianz SE. Maintain Outperform with a fair value of
RM5.32.
Table 1 : Investment Statistics (Allianz; Code: 1163) Bloomberg: ALLZ MK

Net FD FD EPS Net
FYE Turnover profit EPS EPS Growth PER C.EPS* P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (%) (%) (%)
2222.7
2009 118.8 77.2 Na Na 8.3 - 1.5 20.0 1.3 0.4
2010f 2460.8 110.6 71.9 32.0 Na 12.9 59.0 1.2 16.8 Net Cash 0.4
2011f 2720.0 132.6 86.2 38.3 20.0 10.8 68.0 0.9 15.2 Net Cash 2.9
2012f 2933.5 153.5 99.7 44.3 15.8 9.3 - 0.8 14.5 Net Cash 3.4
Market Capitalisation (RMm) 635.5 Allianz SE 75.0
Daily Trading Volume (m units) 0.05
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates
Table 2. Earnings Forecasts Table 3. Forecast Assumptions
FYE Dec (RMm) FY09 FY10F FY11F FY12F FYE Dec (%) FY10F FY11F FY12F
Life premium 868.7 973.0 1,089.7 1,176.9 General

General premium 1,202.4 1,322.6 1,454.9 1,600.4 Premium growth 10.0 10.0 10.0
Other revenues 151.6 165.2 175.4 156.3 Retention ratio 64.0 64.0 64.0
Total Turnover 2,222.7 2,460.8 2,720.0 2,933.5 Claims ratio 60.0 60.0 60.0
Commission ratio 10.0 10.0 10.0
Profit from
s/holders funds (6.5) (6.3) (6.2) (5.2) Mgmt exp ratio 18.0 18.0 18.0
Transfer from
general 161.0 163.3 179.6 197.5 Combined ratio 88.0 88.0 88.0
Transfer from life 12.0 13.4 16.0 26.9 Invt return 4.0 4.0 4.0
Finance cost 0.0 (12.5) 0.0 0.0 Life

Premium growth 12.0 12.0 8.0
Pretax Profit 166.5 158.0 189.4 219.2 Retention ratio 93.0 93.0 93.0
Tax (47.7) (47.4) (56.8) (65.8) Claims ratio 7.0 7.0 7.0
Commission ratio 25.0 25.0 25.0
Net profit 118.8 110.6 132.6 153.5 Mgmt exp ratio 10.0 10.0 10.0
Combined ratio 42.0 42.0 42.0
Invt return 5.0 5.0 5.0
Source: Company, RHBRI Source: RHBRI
Allianz Malaysia
FBM KLCI
PER = 6x
PER = 5x
PER = 4x
APPENDIX
Appendix 1. JCI Accredited Hospitals In Malaysia
Hospitals Date of accreditation
Penang Adventist Hospital 16 Nov 2007
Prince Court Medical Centre 6 Dec 2008
International Specialist Eye Centre 14 Feb 2009
Sime Darby Medical Centre Subang Jaya 17 Oct 2009
Pantai Hospital Kuala Lumpur 14 Nov 2009
National Heart Institute 20 Nov 2009
Source: JCI’s Website
Appendix 2: Areas of IFM Segment
Faci l i ti es Engi neer i ng

Mai ntenance
Bi o-medi cal Engi neer i ng

Li nen and Laundr y Ser vi ces
Mai ntenance
IFM
Cl eansi ng and Jani tor i al

Cl i ni cal Waste Management
Ser vi ces
Source: Faber, RHBRI
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Healthcare Sector Update: The Wealth Effect - 09/08/2010

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Healthcare Sector Update: The Wealth Effect - 09/08/2010

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PP 7767/09/2010(025354)

Malaysia RHB Research .

♦ Key driver - the wealth effect.

Yap Huey Chiang

HEALTHCARE SECTOR AT A GLANCE 3

PRIVATE HEALTHCARE SECTOR IN MALAYSIA 5

NON-MEDICAL HOSPITAL SUPPORT SERVICES 8

WORLD’S LARGEST RUBBER GLOVE PRODUCER 9

VALUATIONS AND RECOMMENDATIONS 10

INDIVIDUAL COMPANIES REPORT

Chart 1: Trend for Total Expenditure on Health (from 1997-2008)

Healthcare spending % to GDP

Source: Ministry of Health, Malaysia

Chart 2: Per Capita Spending On Health (from 1997-2008)

Source: Ministry of Health, Malaysia

Table 1. Healthcare Sector In The Asean Region (2007)

Chart 5: Health Expenditure For Private Households (1997-2008)

Source: Ministry of Health, Malaysia

Table 3. Regional Per Bed Comparisons

Table 4. Government Concessionaires – Non-Medical Hospital Support Services

90.0 8.0 1.4

80.0 7.0 1.2

Source: Margma Source: Margma

Overall, we maintain our Overweight stance on the sector.

Table 5. Healthcare-Related Stocks

Malaysia’s Leading Private Healthcare Provider

♦ Forecasts is maintained. No change to our FY10-12 earnings forecast for now.

Table 1: Investment Statistics ( KPJ; 5878 ) Bloomberg Ticker: KPJ MK

Turnover 1,456.4 1,675.5 1,861.3 2,065.4 No. of hospitals 21 23 25

Depreciation (46.5) (48.6) (55.1) (52.9)

Pretax Profit 143.9 183.1 203.7 228.5

Chart 1. Relative performance to FBM KLCI

Chart 2. PE Band Chart

Expansion In Non-Concession IFM Segment Continues

Table 1 : Investment Statistics (FAB; Code: 9008) Bloomberg: FAB MK

Add : Net cash (End-1QFY10) 172.8 0.48

Source: Company data, RHBRI estimates

Table 3. Earnings Forecasts Table 4. Forecasts Assumptions

Chart 1. Relative performance to FBM KLCI

Chart 2. PE Band Chart

World’s Largest Rubber Glove Manufacturer

Table 1 : Investment Statistics (TOPGLOV; Code: 7113) Bloomberg: TOPG MK

Depreciation (57.0) (61.1) (66.3) (72.8)

EBIT 231.5 321.6 345.1 361.2

Pretax Profit 222.0 320.0 344.4 361.4

Chart 1. Relative performance to FBM KLCI

Chart 2. PE Band Chart

Demand For Gloves Remains Firm

Table 1 : Investment Statistics (KOSSAN; Code: 7153) Bloomberg: KRI MK

EBITDA 183.6 190.4 226.2 238.2

Dep & amort (34.0) (29.6) (33.3) (34.4)

EBIT 149.5 160.9 192.9 203.9

Pretax Profit 87.4 154.1 185.4 195.8

Chart 1. Relative performance to FBM KLCI

Chart 2. PE Band Chart

Leading Surgical Gloves Manufacturer In Malaysia

Table 1 : Investment Statistics (ADV; Code: 7191) Bloomberg: ADV MK

Turnover 282.9 406.3 525.6 651.7 Production

Depreciation (11.0) (12.2) (13.5) (14.8)

EBIT 38.9 49.3 66.6 85.5

Chart 1. Relative performance to FBM KLCI

Chart 2. PE Band Chart

Largest Nitrile Gloves Producer In Malaysia