KPJ Healthcare Berhad (KPJ)’s 1H23 net profit of RM98.8mn was in line with ours but above consensus expectations accounting for 50.0% and 68.2% of full year forecast respectively. Net profit rose by >100% YoY to RM98.8mn thanks to better performance from the Malaysian segment which supported by improved hospital activities. Malaysia operation recorded higher BOR of 66% in 1H23 (vs 53% in 1H22) fuelled by an increase in inpatient days to 405,089 days as opposed to 307,891 days recorded in 1HFY22. 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 and outpatients. We raised our TP to RM1.43 (from RM1.36 previously) as we roll forward our valuation base year to FY24F (from FY23F). Our valuation is derived based on SOP valuation with a WACC of 8.1% and a long-term growth of 1.5%.

• Within expectations. 1H23 net profit of RM98.8mn (YoY: +>100%) was in line with ours but above consensus expectations accounting for 50.0% and 68.2% of full year forecast respectively.

• Dividend. The group declared second interim dividend of 0.65 sen in 2Q23, bringing cumulative 1H23 DPS to 1.25sen (vs 0.45sen in 1HFY22). We estimate a total FY23 DPS of 2.4 sen, translating into a yield of 2.1%.

• QoQ. KPJ’s 2Q23 revenue was down by 3.6% QoQ attributable to lower patient visits (by 7% QoQ) and lower beds occupancy rate (BOR) to 63% (from 70% in 1Q23). In tandem, its net profit decreased by 9.5% QoQ.

• 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 inpatient in 1H23 was up by 25.1% to 165,660 patients (from 132,422 in 1Q22). Malaysia operation recorded higher BOR of 66% in 1H23 (from 53% in 1QFY22) fuelled by an increase in inpatient days to 405,089 days as opposed to 307,891 days recorded in 1HFY22.

• 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) unfavourable 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. We raised our TP to RM1.43 (from RM1.36 previously) as we roll forward our valuation base year to FY24F (from FY23F). 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%. Maintain a BUY call.

Source: BIMB Securities Research - 30 Aug 2023