Investment Highlights

• We maintain our BUY call on KPJ Healthcare with a lower SOP-derived FV of RM1.12/share, after cutting our FY19F, FY20F and FY21F earnings forecasts by 4.8%, 4.7% and 4.6% respectively.

• 1HFY19 core net profit of RM83.4mil (-1.7% YoY) was slightly below our expectation but in line with street’s, accounting for 43.3% and 45.2% of our full-year forecast and the full-year consensus estimates respectively. We believe the key variation against our forecast came largely from a higher-than-expected tax expense.

• 1HFY19 revenue grew 5.6% YoY to RM1,715.4mil on the back of a 5.4% improvement in its Malaysia operations.

• KPJ’s core EBITDA rose 11.5% to RM242.7mil (after excluding RM48.1mil of the MFRS 16 impact) while core EBITDA margins improved 0.7ppt to 14.1%. We believe the improvement is partly attributed to the group’s cost optimization initiatives and improved performance in its hospitals. This was partly offset by the gestational period of its newly opened KPJ Perlis and KPJ Bandar Dato’ Onn.

• KPJ’s interest expense climbed 85.9% to RM79.5mil (RM42.8mil in 1HFY18) due to the effect of the MFRS 16 adoption which recorded a RM31.7mil finance cost on lease liabilities.

• KPJ’s revenue for the Malaysian segment expanded 5.4% to RM1,659.7mil on the back of higher patient visits (+2.5% outpatients; +4.3% inpatients, a 1% increase in occupancy rate of 66% and a higher average revenue per patient (+4.3% per outpatient; +8.4% per inpatient).

• The segment’s EBITDA rose 26.2% to RM297.6mil (+6.8% after adjusting for the MFRS 16 impact). Subsequently, core EBITDA margins remained flat at 17.9% (+0.2ppt YoY).

• KPJ’s revenue in Indonesia saw an improvement of 38.2% to RM27.8mil due to an additional 12 beds in Rumah Sakit Medika Bumi Serpong Damai and an overall increase in both Indonesian hospital patient visits, average length of stay and average revenue per patient (+17.4% per outpatient; +8.1% per inpatient). This was mainly on the back of effective marketing activities and treatment packages introduced.

Source: AmInvest Research - 3 Sept 2019