Healthcare – Headwinds easing, upside emerging

Operational recovery becomes clearer in 2H26. Revenue momentum improved in 3Q26, supported by the return of Thai and international patients, seasonal growth in respiratory disease cases and sustained demand for complex treatments. While investors remain concerned that growth could moderate in 4Q26 due to a high base for respiratory-related cases in 4Q25, we believe seasonal illness is not the sector’s primary earnings driver. Instead, earnings growth should increasingly be supported by the recovery in Middle Eastern patients, higher-acuity treatments and the normalization of Cambodian patient volumes. These factors should support continued YoY revenue growth and margin expansion, making the sector’s recovery more visible through 2H26.

SC reimbursement provides upside beyond our base case. A potential increase in Social Security scheme (SC) reimbursement rates has emerged as a key upside catalyst for 4Q26. An ad hoc subcommittee has been established to review reimbursement rates, which have remained largely unchanged for the past 3–6 years despite rising medical inflation. We expect visibility on potential reimbursement adjustments to improve during 4Q26. Among our coverage, RJH stands to benefit the most, with SC services accounting for 53% of 1H26 revenue, followed by BCH at 37% and CHG at 30%.

Potential valuation recovery as the earnings downgrade cycle nears an end. The sector appears to be transitioning from a period of earnings pressure in 2024–1H26 to improving operating conditions in 2H26. Key headwinds over the past two years included lower Kuwaiti patient revenue, pressure on SC reimbursement rates, co-payment concerns, weaker Cambodian patient volumes and disruptions to Middle Eastern travel. The recovery in revenue and earnings during 2H26 should bring the earnings downgrade cycle closer to an end. This inflection comes at a time when Thai healthcare stocks are trading below their historical valuation ranges and at a 33% discount to regional peers, creating scope for historical and regional valuation gaps to narrow as earnings expectations improve. However, a more sustainable re-rating would require operating improvements to translate into earnings upgrades, together with clearer evidence that new capacity can support long-term growth.

Our top picks are BH, PR9 and BCH. We favor BH, PR9 and BCH, each offering exposure to a distinct investment theme. BH is our preferred play on international patient recovery. A return to positive growth in Middle Eastern arrivals could provide upside to BH’s 3Q26 guidance for moderate revenue growth. PR9 offers the most attractive balance between earnings growth and valuation recovery, underpinned by a diversified patient mix, improving operating leverage and an appealing valuation relative to peers. BCH provides the strongest earnings turnaround potential following a weak 1H26, while also offering upside from SC reimbursement revisions. Based on our sensitivity analysis, a 5% increase in reimbursement rates could lift our 2027 earnings forecast by 13%.

Risks to our call. Key downside risks include a slower-than-expected recovery in Middle Eastern patients due to travel disruptions or geopolitical tensions and softer domestic purchasing power. New capacity projects could also face construction delays, cost overruns or slower utilization ramp-up, resulting in higher initial losses. For the healthcare service sector, we view patient safety as the key social ESG risk, which companies mitigate through quality assurance systems designed to ensure continuity and quality of patient care.