RHB Investment Bank Bhd (RHB Research) has maintained its OVERWEIGHT call on the healthcare sector, identifying IHH Healthcare as its top pick due to its diversified asset base, which positions it well to navigate regulatory uncertainties.

The research house highlighted that the recent introduction of a diagnosis-related group (DRG) financing system in Malaysia is expected to benefit hospitals and patients in the long term by streamlining procedures and enhancing resource allocation. However, RHB Research noted that the system also introduces short-term uncertainties regarding its implementation extent.

The research house mentioned that while the DRG system moves away from the traditional fee-for-service model by specifying a fixed payment amount based on the complexity of a case, the transition to the DRG system requires extensive study and stakeholder engagement due to the varying complexities and costs of medical procedures.

RHB Research emphasised that DRG is not a price-capping mechanism but a discipline-focused approach aimed at improving efficiency and medical outcomes. The research house believes that the system could benefit both hospitals, by optimising resources and patients, through better care delivery.

It also highlighted recent sell-offs in the healthcare sector, attributing them to uncertainties around the DRG implementation. However, RHB Research viewed this as an opportunity for investors to capitalise on attractive entry points, especially for those with a long-term perspective on the structural changes in the industry.

For investors concerned about potential unfavourable outcomes from the DRG system, RHB Research pointed to Sunway Group as a viable alternative. With diversified exposure across sectors such as data centre construction, property development, and hospitality, Sunway is seen as capable of mitigating any negative impact on its healthcare unit. The healthcare division contributed 14.5% of the group's profit before tax for the first nine months of 2024 and 34% of RHB Research's estimated restated net asset value.