Since the first H1N1 case was reported in April this year, the virus has been rapidly spreading across the globe, infecting more than 270,000 people and causing 3200 deaths so far. The rising death toll has raised concerns that the pandemic may be more severe than initially expected. Although we cannot quantify the impact of the pandemic on economies and the equity markets, we do not discount the possibility of the pandemic becoming a serious threat to the global economy. As a follow up to our July 9, 2009 report on the H1N1 pandemic, we are in this report providing an update on the situation and its impact on the healthcare sector to date. On the Malaysian front, we believe healthcare companies such as CCM Duopharma, KPJ and Faber may experience incremental profit from the current development.
Spillover impact on healthcare players. Despite the general perception that healthcare sector will thrive in times of pandemics such as H1N1 due to high demand, the impact on the healthcare sector has been rather incremental than phenomenal, which is in line with our stand in our earlier report. Nevertheless, pharmaceutical companies such as CCM Duopharma (BUY, TP RM3.10) have been experiencing higher sales driven by a slight increase in off-take in normal flu-related pharmaceutical products such as paracetamol and vitamins. Meanwhile, private healthcare providers such as KPJ (BUY, TP RM4.39) have seen higher utilisation rates, particularly for its outpatient segment. As for hospital support services providers such as Faber (BUY, TP RM1.24), the higher level of activities at government hospitals will eventually require more support services, which could potentially translate into a slight increase in revenue. We maintain NEUTRAL on the sector largely due to its low liquidity. Nevertheless, we believe the sector is a good choice for portfolio balancing supported by its relatively defensive business nature as well as steady dividend payout.