Investment Highlights

• We maintain our HOLD call on KPJ Healthcare with an unchanged SOP-derived FV of RM1.15/share.

• KPJ’s unit, KPJ Tawakkal, is planning to construct a new tower block to add 120 beds. The expansion plan is still in the early stage and is subject to approval by the Ministry of Health. If all goes well, construction is expected to begin by end-FY19 and completed by end-FY22.

• KPJ Tawakkal, which is currently operating 200 beds, achieved RM200mil revenue and circa RM20mil PBT in FY18. Its contribution to the groups’ FY18 is circa 6.0% and 7.5% of revenue and PBT respectively.

• KPJ Tawakkal’s occupancy rate stood at around 70%. The hospital also aims to increase its medical tourist patient visits to 15% from 7% currently through its medical tourism initiatives and service offerings.

• As the hospital expansion is still in its early stage of planning, we have not changed our forecasts. However, should the expansion plan go through, it will impact the group in the long term, improving its DCF valuation. A quick calculation estimates its FV to increase to RM1.17 from RM1.15.

• We maintain our estimate of 13.0% EBITDA margin for the group’s FY19F as we expect gestation costs stemming from its new hospital openings to offset any margin boost from the group’s ongoing cost optimization and increase in inpatient admissions.

• KPJ opened KPJ Bandar Dato’ Onn in Johor Bahru in Feb 2019 and is expected to open its KPJ Miri, KPJ Kuching and KPJ Batu Pahat hospitals in 2HFY19.

• We like KPJ Healthcare for its vast network of hospitals in Malaysia, capacity expansions and its position to benefit from the national health insurance scheme. However, we believe at its current share price, the stock is close to its full valuation. At our FV of RM1.16/share, the implied PE is 23.8x.

Source: AmInvest Research - 10 Apr 2019