KPJ reported a 63% YoY decline in 3QFY21 net profit to RM12.6m, due to weaker operating efficiency. For 9MFY21, net profit of RM32m was below both our and consensus estimates at 46% and 33% of full-year estimates respectively. The discrepancy in our forecast was mainly due to higher-than expected tax cost, as business loss arising from newly opened hospital has lead to higher effective tax rate. We revise our earnings projections for FY21F downwards by 21% as we raise our effective tax rate assumption. Although the resumption of business activities and easing of movement restriction should help to improve patient footfall, we believe business volume will remain below pre-Covid levels in FY22F. We retain our Neutral rating on KPJ, with an unchanged TP of RM0.94. On a side note, KPJ also declared an interim dividend of 0.30sen per share.

• Recovery in revenue continues. KPJ reported a revenue of RM699m in 3QFY21, delivering an 8% YoY growth, supported by better contribution from both Malaysian and other operations. Its Malaysian operations reported a 9% QoQ growth in revenue, supported by higher number of patients visit during the quarter (+3% YoY). The Group’s participation in the National Immunisation Program (NIP) by providing vaccination services and the provision of medical treatment to non-Covid patients decanted from public hospitals have also contributed to the growth in revenue. More Covid-19 patients admitted to the hospital in Indonesia has also contributed to the Group’s revenue growth.

• Earnings dragged by higher cost. Despite the growing topline, KPJ’s 3QFY21 PBT suffered a 23% YoY decline to RM43.4m, while PBT margins narrowed by 2.5ppt YoY to 6.2%. The weaker PBT was attributed to an increase in cost, arising from stricter SOP compliance. Higher operating costs in new hospital have also impacted KPJ’s performance, as the hospital is still in its gestation period.

• No impact from Cukai Makmur. The introduction of Cukai Makmur in Budget 2022 is not expected to affect KPJ as the tax is levied on individual entities and they are not expected to exceed the threshold of RM100m chargeable income. Therefore, our FY22F earnings forecast remains unchanged.

Source: PublicInvest Research - 29 Nov 2021