-  We re-affirm our BUY recommendation on KPJ Healthcare Bhd with an unchanged fair value of RM8.00/share, based on our DCF valuation.

-  In light of KPJ’s strong and successful execution track record, the next leg of growth would centre on Terengganu and Malacca, as it was reported recently in local dailies. We had earlier expected this.

-  We, however, reckon the expansion into these two areas would be for the longer term (beyond FY15F), as KPJ would focus more on the current pipeline of hospitals up to FY15F, which amounts to 9 hospitals.

-  Accordingly, plans are currently on-going to find suitable sites in these states and for the right timing for penetration. Potential locations in Malacca include Alor Gajah and Ayer Keroh, given the ease of accessibility and they are growing townships.

-  To put things into perspective, this would eventually strengthen the group’s local foothold and maintain its pole position in market share. KPJ’s presence in every state will help defend against the increasing competitive landscape of private healthcare providers.

-  The group’s strategy to grow its international presence is still intact, which is via acquisition of stakes or through partnerships. While earnings potential is still small compared to local operations, the strategy would not only grow its international footprint, but it would also enable the group to learn and leverage on its overseas experience.

-  We keep our EPS estimates and DPS forecasts. We anticipate a stronger rise for overall earnings, in particular from FY14F onwards, due to:- (1) Faster-than-expected turnaround of new hospitals; (2) Ramp up of operations; and (3) Re-opening of Sabah Medical Centre, which is unlikely to undergo gestation, thanks to its existing customer base.

-  Given KPJ’s lucrative healthcare footprint in Malaysia, the group is well-positioned to benefit from the booming local private healthcare sector. Growth will also be underpinned by the ramp-up in operations of newly opened hospitals. Hence, we maintain our BUY call.

Source: AmeSecurities