Investment Highlights

• We maintain our BUY call on KPJ Healthcare (KPJ) with a lower FV of RM1.02/share (from RM1.15/share). Our FV is based on a PE of 23x FY21F EPS.

• KPJ’s 1QFY20 net profit of RM38.5mil (-2% YoY; -54% QoQ) missed our expectations. It accounted for 20% of our and 22% of the street’s full-year earnings estimates. The variance is largely due to the worse-than-expected impact of Covid-19 and movement control order (MCO) on the group’s performance despite affecting only a part of March 2020 in 1QFY20.

• We cut our earnings estimates by 9.5% for FY20F and 6.3% for FY21F. We assume lower sales and net margins due to the adverse impact of the Covid-19 pandemic. We assume that the pandemic will remain for another 12 months before it is fully contained.

• 1QFY20 revenue grew marginally to RM884.2mil from RM881.0mil in 1QFY19. The slight increase was attributed to additional capacity in existing hospitals like KPJ Seremban (+90 beds) and KPJ Ampang Puteri (+88 beds) which completed their expansion in 3QFY19 and 1Q2020 respectively. KPJ Batu Pahat (opened Sep 2019) and KPJ Miri’s opening (Dec 2019) also supported the revenue increase. The number of beds (capacity) grew 5.2% to 3,308 beds (3,144 beds in 1QFY19). The volume of procedures rose for outpatients by 4.8% and inpatients by 0.7% YoY.

• KPJ’s EBITDA was flattish at RM153.0mil while EBITDA margin also remained flattish at 17.3%. PBT fell 14% YoY to RM55.1mil (RM64.0mil in 1QFY19) while PBT margin dropped 1ppt to 6.2%. The drop was partly attributed to the gestational period of new hospitals like KPJ Bandar Dato’ Onn, KPJ Batu Pahat, KPJ Perlis and KPJ Miri, which are loss-making hospitals.

• Moreover, the group had incurred higher expenses related to the Covid-19 virus such as personal protection equipment for the frontliners, ventilator machines, thermo scanners, surgical masks and hand sanitizers.

• The group also contributed additional manpower, cash donations and loan of equipment to the Ministry of Health to assist the ministry in managing the pandemic.

Source: AmInvest Research - 11 Jun 2020