• Overview. KPJ Healthcare Berhad (KPJ) recorded a resilient 9M22  performance amid revenue and PATAMI that surged by 11.9% and >100%  YoY. The results were supported by (i) improving patient visits, (ii) better bed occupancy and (iii) new opening of Damansara Specialist Hospital 2  (“DSH2”). On a quarterly basis, KPJ revenue increased by 15.8%, thanks to improving hospital activities.

• Against estimates: Above. 9M22’s net profit of RM116.7mn was above our and consensus projection, accounting >100% of full year forecast for both. The main deviation against our forecast was due to better-than-expected patients visit and better cost management.

• Dividend. Declared an interim DPS of 1 sen, bringing YTD DPS to 1.8 sen  (9M21: 0.6 sen). We estimate a total DPS of 2 sen for FY22, translating into a dividend yield of 2%.

• Outlook. Going ahead, we opine that KPJ’s bottom-line to be driven by (i)  rising healthcare expenditure in Malaysia, (ii) higher health insurance ownership (iii) higher disposable income to be propelled by better wages,  job market and new job creation (iv) recovery in bed occupancy rate, (v)  recovery in number of outpatients & outpatients and (vi) increasing trend of health tourists.

• Earning revision. We revised higher our FY22E/FY23F/FY24F earnings by  80%/15%/6% after factoring higher patients’ volume.

• Our call. Maintain a BUY call recommendation with a higher SOP-derived TP of RM1.08 (from 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%.

• Upside risk to our call. i) Currency volatility which may impact medical tourism, (ii) unfavorable regulatory changes as healthcare industry in  Malaysia is highly regulated, and (iii) sudden surge in operating costs and  (iv) lower-than-expected number of patients.

Source: BIMB Securities Research - 25 Nov 2022