• Maintain BUY (TP: RM1.43). KPJ’s 9MFY23 top-line jumped by +19.4% YoY supported by better hospital activities. In tandem, KPJ’s 9MFY23 net profit surged by +77.6% YoY. Nonetheless, excluding a one-off item, namely a gain of RM44.7mn from the disposal of the Indonesia operations, KPJ recorded a core net profit of RM157.8mn (+38.3% YoY). The groups bottom-line was in-line with ours and consensus expectations, accounting for 79.9% and 70.8% respectively. The group declared a third interim dividend of 0.8sen per ordinary share, bringing cumulative 9MFY23 DPS to 2.05sen (vs 1.0sen in 9MFY22). We maintain our FY23F DPS at 2.4sen, translating into 2.1% DY. Maintain a BUY call with an unchanged TP of RM1.43. Our valuation is derived based on SOP valuation with a WACC of 8.1% and a long-term growth of 1.5%.

• Key highlights. The group’s 3QFY23 revenue and net profit grew by +15.9% YoY and +71.3% YoY respectively. This is supported by an increase in inpatient visits, rising from 85,655 patients to 96,968 patients, along with a corresponding growth in the bed occupancy rate from 66% to 73%. Meanwhile, the group’s core net profit was flattish in 3Q23. It is worth to note that KPJ Damansara 2 and KPJ Penang have shown the most substantial revenue growth, attributed to being newly opened hospital and building block respectively.

• Earnings Revision. No changes to our forecast.

• Outlook. Going ahead we opine that KPJ’s steady outlook will be continue to be driven by (i) the upward trajectory of healthcare expenditure in Malaysia, (ii) increased ownership of health insurance, (iii) a rebound in bed occupancy rates, (iv) better numbers of inpatients and outpatients, and (v) the growing trend of health tourism. Potential downside risks to our call include (i) currency volatility, which may affect medical tourism, (ii) adverse regulatory alterations given the highly regulated nature of the healthcare industry in Malaysia, (iii) an abrupt increase in operating costs, as well as (iv) a lower-than-expected number of patients.

Source: BIMB Securities Research - 29 Nov 2023