Investment Highlights

• We maintain our BUY call on KPJ Healthcare (KPJ) with an unchanged SOP-derived FV of RM1.12/share.

• KPJ’s 9MFY19 net profit of RM131.0mil (+3.6% YoY) was in line with our and street’s expectations, accounting for 71.4% and 70.9% of full-year earnings forecasts respectively.

• 9MFY19 revenue grew 7.2% to RM2,444.8mil mainly on the back of a 7.0% improvement in its Malaysia operations.

• KPJ’s PBT (excluding MFRS 16 impact) rose 14.4% with PBT margins of 8.1%, up 0.5ppt. We attribute the improvement 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, KPJ Bandar Dato’ Onn and KPJ Batu Pahat. We believe KPJ’s margins will continue to be flattish as gestational costs from its planned expansions come onstream but this will be mitigated by internal cost optimization as well as improving operational efficiencies.

• Its Malaysian segment’s revenue expanded 7.0% to RM2,536.2mil on the back of higher patient visits (+3.6% outpatients; +5.6% inpatients), a higher average revenue per patient (+0.3% per outpatient; +3.7% per inpatient). There was an increase in the number of radiology cases and surgeries performed. Contribution from KPJ Perlis (opened May 2018), KPJ Bandar Dato’ Onn (opened February 2019) and KPJ Batu Pahat (opened September 2019) also lifted its revenue.

• The segment’s EBITDA grew 28.0% while EBITDA margin rose 2.9ppt in 9MFY19. This was due to the adoption of the MFRS 16 where the group did not recognize lease rental, and instead recognized depreciation and finance costs derived from the right-of-use assets and lease liabilities respectively.

• KPJ’s revenue in its other operations grew 14.4% YoY to RM85.6mil in 9MFY19 largely on the back of an improvement in its Indonesian operations. There were 12 additional beds in Rumah Sakit Medika Bumi Serpong Damai and an overall increase in both Indonesian hospitals patient visits, average length of stay and average revenue per inpatient. The increases were driven by effective marketing activities and treatment packages introduced.

• As a result, EBITDA grew to RM11.9mil in 9MFY19 from RM1.0mil in 9MFY18. EBITDA margin improved 12.6ppt to 13.9%.

Source: AmInvest Research - 29 Nov 2019