• Improved results from the Malaysian segment, supported by enhanced hospital activities

• Drivers of KPJ's earnings include (i) rising healthcare expenditure in Malaysia, (ii) higher health insurance ownership, (iii) recovery in bed occupancy rate, (vi) recovery in the number of inpatients & outpatients and (v) increasing trend of health tourists

• We maintain a BUY call recommendation with SOP-derived TP of RM1.36. Our valuation is derived based on sum-of-part (SOP) valuation.

A Hive of Hospital Activities

KPJ witnessed a significant year-on-year growth in both its top-line and bottom-line, with a 29.2% increase in revenue and over 100% increase in net profit. This boost in performance was primarily driven by improved results from the Malaysian segment, supported by enhanced hospital activities. In 1Q23, the total number of patients increased by 4% to 777,161 and Bed Occupancy Rate (BOR) rising to 70%, a substantial increase from 48% in the 1Q22.

Beyond Recovery Mode

Since the reopening of international borders, KPJ's Health Tourism segment has experienced consistent growth. The key driver of this growth has been the heightened connectivity and affordability factors. KPJ aims to diversify its patient base by expanding its market share and adopting a more proactive approach in targeting the Indo-China, Middle Eastern North Africa (MENA), and North Asia markets. The new Damansara Specialist Hospital 2 (DSH2), also foresees circa 50% of patients coming from foreigners, consistent with DSH2 ambitious expansion plan for 2023-2025. The steady outlook for KPJ is expected to persist due to several key factors namely (i) an upward trend in healthcare expenditure in Malaysia, which contributes to the company's growth, (ii) an increase in health insurance ownership, which further supports KPJ's outlook (iii) recovery in the bed occupancy rate, indicating improved utilization of hospital facilities, (iv) a rebound in the number of inpatients and outpatients seeking healthcare services, which contributes to KPJ's positive outlook and (v) growing trend of health tourists, indicating an increase in the number of international visitors seeking medical treatments and services. These factors will collectively drive KPJ's steady outlook.

Maintain a BUY call with TP of RM7.18

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.

Upside risks to our call include

(i) a sudden surge in operating costs, (ii) a lower-than-expected number of patients, (iii) a decline in purchasing power due to economic slowdown and inflation as well as (iv) increased competition from private hospital players.

Source: BIMB Securities Research - 13 Jul 2023