• KPJ Healthcare (KPJ) 1H18 core earnings grew 2% to RM86m in comparison to previous year. Overall, earnings came in in-line with our expectations at 40% whilst broadly in-line with consensus at 48%.

• 2Q18 core profit spiked 39% yoy and 13% qoq, to RM46m. The hike arose from cost optimization initiatives mainly by the new hospitals which were under gestation period.

• An interim dividend of 0.5sen (vs. 2Q18: 1.5sen) was declared.

• We maintain our forecast with a hold call and TP of RM1.00 based on SOP method with WACC of 7.2%.

Revenue boosted by yoy growth in Malaysia

KPJ’s 2Q18 revenue grew 3% yoy but fell 3% qoq to RM801m. The positive performance was largely driven by the Malaysia operations. KPJ attributed the yoy growth to increased number of patients and complex cases per inpatient. Pre-tax profit margin expanded to 8% (2Q17: 6%) mainly contributed by better associate contribution.

Strong net profit recorded

Its 2Q18 core profits increased 13% qoq and 39% yoy to RM46m. The increase was largely due to cost optimisation initiatives. At pre-tax level, earnings were up 29% yoy, yet flat qoq to RM61m.

Weak Indonesia operation

The segment faced challenges where occupancy rate for Rumah Sakit Bumi Serpong fell to 32% (2Q17: 41%) whilst gains from the higher occupancy rate at Permata Hijau (2Q18: 54%; 1Q17: 37%) was diluted by the strong ringgit.

Dividend declared

A second interim dividend of 0.5sen was declared and paid during the quarter. We expect a total dividend of 1.9 sen for FY18, translating to dividend yield of 1.7% at current level.

Maintain hold with TP of RM1.00

KPJ’s share price has done well recently, gaining 12% the past month. We maintain hold with SOP-derived TP of RM1.00. We expect its earnings will pick up in 2H18 to meet our FY18 forecast, as 1H18 experienced lower patient numbers registered due to long festive season holiday, according to the management.

Source: BIMB Securities Research - 17 Aug 2018