• Downgrade to HOLD (TP: RM1.88). KPJ’s 3MFY24 top-line grew by +11.4% YoY to RM908.0mn, supported by better hospital activities. Note that inpatient visits increased by 3.4% YoY to 91,039 patients from 88,036 patients in 3MFY23. In tandem, KPJ’s earnings jumped by +38.9% YoY supported by better performance of the Malaysia segment. It is worth to note that Damansara Specialist Hospital 2 (DSH2) showed a significant improvement in EBITDA, recovering from a negative EBITDA of nearly RM10.0mn to EBITDA of RM0.6mn. The group’s bottom-line was within ours but above consensus expectations, accounting for 23% and 28% respectively. The group declared an interim dividend of 1.0sen per ordinary share in the current quarter (vs. 0.6sen in 1QFY22). Downgrade to HOLD call due to recent price rally, with an unchanged TP of RM1.88. Our valuation is derived based on SOP valuation with a WACC of 8.1% and a long-term growth of 2.5%. YTD, KPJ’s share price has surged by 40.9%.

• Key highlights. Zooming in on the Malaysia operation, this segment improved by 11.4% YoY, contributing RM892.6mn in the current quarter. DSH2 revenue increased to RM14.7mn. On top of that, KPJ Klang, KPJ Ampang Puteri, and KPJ Selangor collectively added an increase of RM17.8mn. These hospitals experienced a 13% rise in surgeries, totalling 4,509 cases, and a 7% increase in inpatient days, reaching 40,672 days in 1QFY24.

• Earnings Revision. No changes to our forecast.

• Outlook. We maintain a positive outlook on KPJ, particularly regarding their focus on organic expansion. In medical tourism, we anticipate KPJ will continue to achieve robust earnings growth driven by the increasing demand for high-quality healthcare services. Note that, KPJ is emphasising digital transformation by investing in related programs and upgrading its older hospitals to enhance efficiency and extend its service reach. The opening of DSH2 marks a significant milestone in this digital transformation and revolutionises its 'Care for Life' approach. Hence, we believe DSH2 will continue to experience strong growth. Note that DSH2 achieved doubledigit growth in 1QFY24 comparing the two quarters.

Source: BIMB Securities Research - 28 May 2024