Malaysia’s healthcare sector is projected to maintain its resilience amid growing demand, capacity expansion, and increasing requirements for specialised medical services, according to recent market analyses. Expectations for continued government support through Budget 2027 also contribute to a positive outlook, balancing higher public healthcare expenditure with initiatives aimed at improving affordability and boosting medical tourism.
Phillip Capital Research reiterated an “overweight” rating on the sector, citing steady earnings and sustained healthcare demand driven by clinical efficiency improvements in centres of excellence. The research firm highlighted that while sector valuations have moderated to one standard deviation below their three-year average, they remain supported by the sector’s defensive growth characteristics.
Preferred investment picks from Phillip Capital include IHH Healthcare Bhd, with a target price of RM11.03, and KPJ Healthcare Bhd, valued at RM3.80. Both companies benefit from ongoing capacity expansion and growing demand, notably for elective surgeries.
Budget 2027 is anticipated to see increased funding for the Health Ministry, focusing primarily on public healthcare services. Additionally, allocations are expected to support medical tourism efforts linked to the Visit Malaysia 2026 campaign extension and the rollout of diagnosis-related groups (DRG) payment systems, including upgrades to related information technology infrastructure.
Despite higher expected public healthcare spending, capacity constraints in public facilities continue to pose challenges. Between 2019 and 2024, public hospital bed growth averaged only 1% annually, whereas private hospitals expanded their bed capacity by about 3% per year. This disparity is likely to sustain patient flow to private healthcare providers over the near term.
The sector is also facing pressure from rising costs. Malaysia’s Health Price Index rose by 3% year-on-year in 2025, accelerating from 1.4% in 2024 and marking the fastest increase in three years. Health services recorded the highest inflation within this index at 4.4%, largely attributable to a 9% increase in insurance premiums. The Health Ministry attributes these rising costs primarily to higher insurance rates, increased prevalence of non-communicable diseases, and expanded investment in medical technologies.
Regionally, Malaysia’s health inflation rate of 3% was second only to Vietnam’s 5.3%, surpassing Singapore’s 2.7%, the Philippines’ 2.6%, and Indonesia’s 1.9%. The introduction of the DRG payment system in 2027 is expected to enhance price transparency in healthcare, though Phillip Capital projects only a moderate impact on private hospital profit margins. The new system's hybrid fee-for-service and DRG structure is designed to facilitate a gradual transition to fully DRG-based pricing.
Separately, the MediAsas initiative, launched in July 2026, aims to improve private healthcare affordability through standalone medical insurance and takaful plans. KPJ Healthcare is seen as a potential beneficiary due to its participation in the MediAsas pilot program and extensive hospital network. However, the impact on patient volumes may be gradual given ongoing out-of-pocket costs borne by consumers.
Industry observers also anticipate steady healthcare demand driven by Malaysia’s ageing population and rising rates of chronic diseases. While Budget 2027 could provide additional support for the sector, private hospitals are expected to remain crucial in meeting demand as public healthcare infrastructure takes time to expand.