KPJ’s 2QFY22 net profit jumped more than threefold to RM27.1m, mainly due to low base effect with higher patient volume. For 1HFY22, KPJ net profit increased by 147.2% to RM49.3m. Despite that, the results came in below both our and consensus estimates at 38% and 39% of full-year estimates respectively. The discrepancy in our forecast was mainly due to higher-than-expected effective tax rate given that some of the losses incurred by new hospitals are not deductible for tax purpose. We cut our FY22F earnings by 12% to factor in higher effectiev tax rate. We retain our Neutral rating on KPJ with an unchanged TP of RM0.93 based on 26x PER (near its 5-year historical mean).

• Recovery in revenue. KPJ reported a revenue of RM707.6m in 2QFY22, delivering an 11.8% YoY growth, on the back of better contribution from Malaysia but was partly offset by a slight decrease in revenue from others segment. Its Malaysian operations reported a 12.9% YoY growth in revenue, supported by higher occupancy rate of 56% against 41% in 2QFY21. However , this was partly offset by an 11% decrease in Australia’s aged care and retirement village, Jeta Gardens, mainly due to the lower occupancy rate of 85% compared to 89% in 2QFY22. Higher number in both inpatient and outpatient was also seen for the Group in 2QFY22, rising by 31% and 4% respectively.

• 2QFY22 PBT. In tandem with the growth in revenue, KPJ’s 2QFY22 PBT increase by 222.7% YoY to RM45.8m. The growth in PBT was attributed to an increase in share of associate’s profit, which increased by 92.9% from RM6.3m to RM12.2m but this was partly offset by higher staff costs and professional fees incurred by Jeta Gardens. PBT margins improved by 4.3ppts to 6.5%. Meanwhile, management is still expecting additional cost incurred for Damansara 2 in the coming quarters.

• Outlook. We expect the recovery in patient volume to continue given the easing of cross bordering requirements, which we believe should help to rebuild the health tourism segment. In addition, the weakening of Malaysia currency could potentially attract more foreign patients. The favourable demographic trends such as ageing population and growing middle income population should support long-term growth. However, inflationary pressure and new hospitals under gestation period could be a drag to earnings in the near-term.

Source: PublicInvest Research - 30 Aug 2022