Kenanga Research & Investment

KPJ Healthcare - In the Pink of Health

Publish date: Wed, 29 Nov 2023, 10:08 AM

KPJ’s 9MFY23 beat expectations on stronger-than-expected business rebound as the pandemic ended. Its 9MFY23 net profit rose 71%, buoyed by the full economy reopening coupled with reduced losses from new hospitals. We raise our FY23-24F net profit forecasts by 4% each, lift our TP by 4% to RM1.56 (from RM1.50) and reiterate our OUTPERFORM call.

Its 9MFY23 core net profit of RM171m (+71%) beat expectations, coming in at 78% and 85% of our full-year forecast and the full-year consensus estimate, respectively. The variance against our forecast came largely from stronger-than-expected bed occupancy rates.

YoY, its 9MFY23 revenue rose 19%, thanks to higher patient throughput (+4%) and higher BOR of 67% (compared to 56% in 9MFY22) as demand for non-COVID related services rebounded including elective surgeries cases (+12%) following the transition to endemic phase. However, its net profit rose 71% thanks to better overhead absorption (on an improved turnover) as well as reduced losses from its new hospitals (which are EBITDA positive), i.e. KPJ Bandar Dato’ Onn, KPJ Perlis and KPJ Miri.

QoQ, its 3QFY23 revenue rose 16% due to higher throughput from inpatient (+17%) and outpatient (+11%) as BOR rose to 73% from 63% in 2QFY23. We believe patients flocked back to seek treatment following the festive holidays in 2QFY23. Correspondingly, its 3QFY23 core net profit rose 53% to RM72m boosted by higher associates (+42%) and better overhead absorption (on an improved turnover). A 4th interim dividend and a special dividend of 1.05 sen and 0.25 sen was declared, respectively, bringing 9MFY23 to 3.35 sen which came in above our expectation.

Outlook. Looking ahead into FY23, we project KPJ’s patient throughput to grow 14% (vs. 12% in FY22) and BOR of 70% (vs. 58% in FY22) as the demand for private healthcare services resumes its growth path post the pandemic.

Forecasts. We raise our FY23-24F net profit forecasts by 4% each, as we raise our assumption on BOR from 70% to 71%.

Correspondingly, we lift our TP by 4% to RM1.56 (previously RM1.50) based on 28x FY24F EPS, in line with its regional peers. There is no adjustment to TP based on ESG given a 3-star rating as appraised by us (see next page).

We continue to like KPJ for: (i) the low “price elasticity of demand” for healthcare service, which mean players are less vulnerable to high inflation as they could pass on the higher cost, (ii) being a reopening play, especially for elective surgeries, and (iii) its strong market position locally with the largest network of 29 private hospitals (vs. only 16 of IHH Healthcare’s Malaysia operation in the second place). Reiterate OUTPERFORM.

Key risks to our call are: (i) regulatory risk, (ii) the lack of political will to roll out a national health insurance scheme, and (iii) longer-than-expected gestation periods for its newer hospitals.

Source: Kenanga Research - 29 Nov 2023

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