KPJ’s reported a 9MFY20 net profit of RM85.2m, declining 33.1% YoY, as the Group experienced a reduction in patient volume, due to patients delaying non-urgent medical treatment and avoiding hospital visits. KPJ’s results came in below both our and consensus estimates at 65% and 60% respectively. The discrepancy in our earnings forecast was mainly due to the higher-thanexpected costs incurred. We cut our earnings forecast for FY20F by 6% as we impute a higher cost assumption into our earnings forecast while FY21-22F remained unchanged. We reiterate our Outperform call on KPJ, with an unchanged TP of RM1.05 (based on 26x FY21F EPS of 4.2sen). On a side note, KPJ also announced an interim dividend of 0.4sen per share.

• Overall. KPJ’s delivered a revenue of RM850.7m, down 7.4% YoY as patients delay non-elective surgeries and avoided hospital visits. Patient volume was lower by 11% YoY, to 736.3k patients. Evidently, the bed occupancy rate declined to 51% in 3QFY20, as opposed to an average occupancy rate of 73% in 3QFY19. The impact of lower patient footfall was partly mitigated by higher laboratory revenue contributed by Lablink, which grew by 17% YoY. We believe the higher laboratory revenue was supported by the higher number of tests being carried out, especially Covid-19 related tests.

Despite the Group’s effort in optimizing cost and benefitting from cash relief dished out by the Malaysian government, KPJ’s PAT margin has narrowed by 1ppts YoY to 4%. Net profit for 3QFY20 declined by 27% YoY to RM34.0m, reflecting the impact of lower business activities across its hospitals. Hospitals that are still under gestation period, namely KPJ Bandar Dato Onn, KPJ Batu Pahat, KPJ Perlis and KPJ Miri, also contributed to the margin compression.

• Not reverting to pre-Covid levels yet. Since the relaxation of movement restrictions in June, inpatient footfall (Jul: 20.6k, Aug: 21.0k, Sept: 21.5k) and bed occupancy rate (Jul: 49%, Aug: 51%, Sept: 52%) have continued to gradually improve, although the operational metrics have yet to return to pre-Covid levels and the rate of recovery being much less steeper than when the movement control was first eased in 2QFY20. We also highlight that the number of surgeries performed has also been slowly recovering (Jul: 7,653, Aug: 7,475, Sept: 7,710).

Source: PublicInvest Research - 1 Dec 2020