KPJ Healthcare’s 3QFY23 net profit jumped 78% YoY to RM90.3m, mainly attributed to the higher bed occupancy rate (BOR) and higher influx of inpatient volume. After stripping off non-operating items, KPJ’s 9MFY23 core net profit increased by 71% YoY to RM171.2m. The results were within street’s estimates at 76.9% but exceeded our expectation at 84.9% of full-year forecasts. The discrepancy in our forecast was mainly due to the higher-thanexpected BOR. We raised our FY23-25F earnings by 1%-11% as we factor in higher BOR and inpatient visits. We maintain our Outperform rating on KPJ with a higher SOTP-based TP of RM1.45, based on 10x EV/EBITDA. On a side note, KPJ declared an interim dividend of 1.05sen per share and a special dividend of 0.25sen per share.

• Higher BOR and inpatient volume. KPJ reported a revenue of RM925.4m in 3QFY23 (+15.9% YoY) mainly driven by the growth in Malaysia’s segment which recorded a higher revenue of RM888.13m (+14.6% YoY). The better performance in Malaysia segment was supported by an increase in total number of inpatient visits by 12% YoY, coupled with 14% YoY improvement in inpatient days from 202,683 to 230,824 days in 3QFY23. Notably, KPJ Damansara 2 and KPJ Penang exhibited the largest increase in revenue upon new openings. Meanwhile, the overall Group BOR has increased to 73% in 3QFY23 (3QFY22: 66%).

• Stronger growth in core net profit. In tandem with the growth in revenue, KPJ’s 3QFY23 PBT jumped 50.5% YoY to RM133.1m. This led to a 3.3ppts PBT margin expansions to 14.4% in 3QFY23. Besides, the Group’s EBITDA improved by 29% YoY to RM254.8m in 3QFY23, mainly due to an increase in hospital activities and a one-off disposal gain of RM41.5m on Indonesia operation. After stripping off the non-operating items, IHH’s core net profit stood at RM74m in 3QFY23 (+46% YoY).

• Outlook. We believe KPJ will continue to benefit from the reopening of international borders, facilitating increased healthcare services and inpatient influx. The Group's ongoing capacity expansions and strategic focus on medical health tourism enable premium pricing, bolstering revenue intensity and economies of scale to offset inflationary pressures. We remain optimistic on KPJ’s long term prospect as the Group is wellpoised to leverage favorable demographic shifts, including an aging population and a burgeoning middle-income segment, fostering sustained growth through heightened demand for specialized healthcare services and enhanced accessibility.

Source: PublicInvest Research - 29 Nov 2023