- We maintain HOLD on KPJ Healthcare Bhd with an unchanged DCF-derived fair value of RM4.10/share.

- At the halfway mark, KPJ reported a core net profit of RM70mil – a 9% improvement from RM64mil in 1HFY14. This was on the back of a 13% topline growth.

- Earnings are in line with both our and market expectations.

- KPJ declared a single-tier dividend of 1.75 sen. The exand payment dates are on 23 Sept and 19 Oct, respectively. Total dividend declared YTD is 3.5 sen (yield: 1%).

- Sequentially, 2Q topline growth was flat (0.6%). We believe this could be attributed to lower inpatient volumes during the fasting month as well as the implementation of GST. Earnings for the quarter grew ~6% on both QoQ and YoY basis due to price reversions and improved efficiency, we believe.

- The improvement in revenue could be due to the continued ramp-up of existing hospitals (4% YoY increase in operating beds). Recall that the Rawang and Maharani hospitals were opened in March and June last year. Overall occupancy rate remained healthy at ~70%.

- We understand that KPJ Pahang is slated for opening in 4Q15 with an initial capacity of 120 beds (full: 190 beds). KPJ Perlis should open in 1Q16 (initial: 60 of 90 beds). If all goes well, KPJ will have 26 operating hospitals in its stable by year-end.

- Despite cost pressure from GST, its EBITDA margin was sustained at 12%. This could be attributed to cost efficiency as well as price reversions towards coping with inflation.

- Growth was seen at its Malaysia & Indonesia segments, but its aged care facility business in Australia remained in the red.

- Moving forward, we expect continued revenue growth on higher patient volume and capacity expansion, while margins will be sustained at the current levels.

- Over the next four years, nine hospitals will come onstream and add 1,190 beds (vs. 2,891 beds currently). Hospitals slated for opening in 2017 include KPJ Kuching and Miri (initial capacity of 130 and 60 beds each). The flagship Bandar Dato’ Onn will only be ready in 2017 (See Exhibit 6).

- All in, KPJ’s 1H performance is within expectations. KPJ is currently trading at 31x PE – close to its 3-year mean of 30x.

Source: AmeSecurities Research - 28 Aug 2015