KPJ Healthcare Berhad (KPJ)’s 1Q23 net profit was in line with our but above consensus expectations, accounting 26.3% and 35.8% of full year estimates respectively. Net profit rose by >100% YoY to RM51.9mn thanks to better performance from the Malaysian segment which supported by improved hospital activities. Going ahead, we anticipate a steady KPJ’s outlook to be driven by (i) rising healthcare expenditure in Malaysia, (ii) higher health insurance ownership, (iii) recovery in bed occupancy rate and (iv) recovery in number of inpatients & outpatients. Maintain a BUY call recommendation with SOP-derived TP of RM1.36. 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%.

• Within expectations. 1Q23 net profit of RM51.9mn (QoQ: -28.0%, YoY: +>100%) was in line with ours but above consensus expectations accounting 26.3% and 35.8% of full year forecast respectively.

• Dividend. The group declared a first interim dividend of 0.6 sen (versus 0.2 sen in 1QFY22). The current dividend is equivalent to a yield of 0.5% based on current market price. We estimate total FYE23 DPS of 2.4 sen, translating into a yield of 2.1%

• QoQ. KPJ’s 1Q23 revenue was up by 6.2% YoY attributable to better performance namely patient visits, higher beds occupancy rate (BOR) to 70% (from 64%). However, its net profit decreased by 28.0% QoQ as there were a few contributing factors to the higher profits in 4QFY22 namely the one-off adjustment on the fair value of PPE and the gain from revaluation of investment properties. There was no such gain in 1QFY22.

• YoY/ YTD. Top-line and bottom-line increased by 29.2% YoY and +>100% YoY respectively, boosted by better performance from the Malaysian segment supported by improved hospital activities. Total patient in 1Q23 was up by 4% to 777,161 patients (from 745,338 in 1Q22). Its BOR recorded at 70% (from 48% in 1QFY22) fuelled by an increase in inpatient days to 210,448 days in comparison to 141,371 days in 1QFY22.

• Outlook. KPJ’s steady outlook will be continue to be driven by (i) rising healthcare expenditure in Malaysia, (ii) higher health insurance ownership, (iii) recovery in bed occupancy rate, (vi) recovery in number of inpatients & outpatients and (v) increasing trend of health tourists. Downside risks to our call include; (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.

• Forecast: Unchanged

• Our call. Maintain a BUY call recommendation with SOP-derived TP of RM1.36. 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%

Source: BIMB Securities Research - 31 May 2023