KPJ reported a 27% YoY decline in 4QFY21 net profit to RM18.5m, due to higher tax expenses. KPJ’s full-year FY21 net profit was down 53.8% to RM51.0m mainly due to higher fixed cost, incremental cost for SOP compliance and losses incurred from new hospital. After stripping out non recurring items of gain on valuation of investment properties (RM13.4m) and loss in valuation of PPE (RM10.1m), KPJ’s full-year core net profit stood at RM47.7m, which was below both our and consensus estimates at 85% and 77% of full-year estimates respectively. The discrepancy in our forecast was mainly due to higher-than-expected operating expenses. Nevertheless, we maintain our earnings projections as we expect the ramping up of new hospitals during FY22F should help to improve KPJ’s operational efficiency. We retain our Neutral rating on KPJ, with an unchanged TP of RM0.95. On a side note, KPJ declared an interim dividend of 0.20sen.

• Recovery in revenue continues. KPJ reported a revenue of RM689m in 4QFY21, delivering a 10.7% YoY growth, on the back of better contribution from both Malaysian and other operations. Its Malaysian operations reported a 11% YoY growth in revenue, supported by higher number of outpatients (+4.5% YoY) and inpatients (+21.6% YoY) visit during the quarter. The colloboration with public sector to provide medical treatment to decanted non-Covid patients have also contributed to better performance. Higher volume of patients visit to Indonesia hospital and higher occupancy rate (+10% YoY) in Australia aged care and retirement villange, Jeta Gardens, has also contributed to the Group’s revenue growth.

• PBT grow, but dropped in net profit. In tandem with the growth in revenue, KPJ’s 4QFY21 PBT increase by 83% YoY to RM37.8m, while PBT margins improved by 2.2ppt YoY to 5.5%. The stronger PBT was attributed to an increase in share of associate’s profit, which has increased from RM1.7m to RM11.3m. However, net profit declined by 27% to RM18.5m mainly due to higher tax expenses as the Group does not recognised the tax benefits arising from the new hospitals which were under gestation period.

• Outlook. Even with the resurgence of Covid cases, we expect the reopening of international border is likely to happen in the near future which should accelerate the recovery progress via medical tourism. That said, due to the high transmissibility of Omicron variant, stricter adherence to SOP may still be implemented which should eventually limit its operational efficiency.

Source: PublicInvest Research - 21 Feb 2022