Investment Highlights

• We maintain our HOLD recommendation on KPJ Healthcare with an unchanged SOP-derived FV of RM 1.15. We have introduced our FY21F net profit forecast of RM235.1mil.

• FY18 core net profit of RM171.4mil (+5.6% YoY) came in line with expectations, accounting for 95% of our and street’s full year forecast.

• Key highlights of KPJ’s 4QFY18 results included: 1. FY18 topline grew 4.0% YoY to RM3,308.1mil (from RM3,180.0mil). This was on the back of a 4.4% improvement in its Malaysian operations but slightly dragged by the 11% decline in its Indonesian operations. 2. KPJ’s Malaysian segment expanded 4.4% due to higher patient admissions and number of beds as well as surgery cases. The group has also added 14 new consultants who contributed to a rise of 3% of inpatients and outpatients. The group’s extended promotions to neighbouring countries, online promotions and marketing strategies also helped boost growth. 3. KPJ’s inpatient admissions rose 4.6% to 299.8K while its average revenue per inpatient improved by 1.3% to RM7,274. The number of operating beds is at 3,107 compared with 3,052 in FY17. 4. KPJ’s core EBITDA climbed 16.3% to RM447.4mil while core EBITDA margins improved by 1.4ppts to 13.5% (from 12.1% in FY17). This was mainly attributed to the group’s cost optimization and higher average revenue per patient. Moreover, KPJ Rawang and KPJ Bandar Maharani have both turned profitable in FY18.

• KPJ’s Indonesian operations saw an 11.0% decline in revenue to RM43.5mil mainly on the back of a lower number of patients (-9.8% outpatients; -21.5% inpatients) in Rumah Sakit Medica Bumi Serpong Damai due to stricter regulations imposed under the BPSJ Kesehatan scheme. However, EBITDA improved to RM1.3mil (from negative EBITDA of RM0.8mil previously). This is due to lower operational cost incurred in FY18.

• Moving forward, we believe that with the opening of KPJ Bandar Dato’ Onn in Johor Baru in Feb 2019 and the expected opening of KPJ Kuching in 2QFY19, KPJ will intensify its activities to promote these hospitals in neighbouring countries.

Source: AmInvest Research - 20 Feb 2019