• We re-initiate coverage on KPJ Healthcare (KPJ) with a BUY recommendation premised on (i) rising healthcare expenditure in Malaysia, (ii) a favourable prospect on health insurance (iii) higher disposable income propelled by bright employment market, job creation and increase in wages (iv) recovery in bed occupancy rate, (v) recovery in number of outpatients & inpatients and (vi) increasing trend of health tourists.

• A revival in medical tourism as one of the major catalysts to push earnings for private hospital.

• We also admire KPJ persistence in rewarding its shareholders given its >40% of dividend payout trend in the last few years. Assuming a 46-47% dividend payout ratio, we expect KPJ to declare 1.0 sen/1.6 sen/1.9 sen dividend per share for 2022E/ 2023F/2023F respectively.

• We value KPJ at RM0.96, derived based on sum-of-parts (SOP) valuation.

One of major private healthcare providers in Malaysia

KPJ Healthcare Berhad (KPJ) is the healthcare division of Johor Corporation, a conglomerate with diverse business interest across many sectors (i.e., healthcare, property, palm oil and etc). Their core business is in the provision of private healthcare services in Malaysia, Indonesia, Australia, Bangladesh and Thailand. KPJ also has an education arm namely (1) KPJ Healthcare University College, (2) The Malaysian College of Hospitality and Management and (3) The Sheikh Fazilatunnessa Mujib KPJ Nursing College, Bangladesh.

A rise in medical tourist

It is worth to note that KPJ is planning to re-energise the Indonesian market to be its primary health tourism business while also penetrating new markets within ASEAN. It also plans to make the MENA (Middle East and North Africa) as its secondary markets. According to Malaysia Healthcare Travel Council (MHTC), Malaysian government is targeting hospital revenues (medical receipts only) from medical tourism to hit RM1bn in 2022 before increasing to RM1.3bn, RM1.7bn and RM2bn for 2023, 2024 and 2025 respectively. All in, we foresee a significant improvement from KPJ health tourism next year thanks to a full year impact on economic openings.

Anticipate KPJ to maintain more than 40% dividend payout ratio.

Historically we learnt that the company has been paying more than its dividend policy of distributing 40% of net profits and this is expected to continue in the foreseeable future. Assuming a 46-47% dividend payout ratio, we expect KPJ to declare 1.0 sen/1.6 sen/1.9 sen dividend per share for 2022E/ 2023F/2023F respectively, translating into a decent 1.2% - 2.04% yield at current price level.

Re-initiate with a ‘BUY’ call and TP of RM0.96

We re-initiate coverage on KPJ with a BUY call at TP of RM0.96. Our valuation is derived based on sum-of-part (SOP) valuation with a WACC of 8.1% and a long-term growth of 1.5%. Note that the share price has declined by 24.5% YTD making it an attractive entry level for the stock. Upside potential is set to reach double-digit at our fair value and hence, the bullish call on the stock.

Source: BIMB Securities Research - 28 Oct 2022