• Maintain HOLD (TP: RM2.11). KPJ’s 9MFY24 top-line grew by +14.5% YoY to RM2,871mn, driven by an increase inpatient visits (7.8% YoY) and expanded bed capacity. In tandem, KPJ’s earnings jumped by +11.6% YoY supported by better performance of the Malaysia segment up by +15.0% YoY. The group's bottom-line was inline with our full-year forecasts but above consensus, amounting for 77% and 84% respectively. We expect KPJ to continue delivering better earnings in 4Q24, supported by higher patient traffic for check-ups and other medical procedures, as patients tend to delay such services until later in the year to utilize their annual insurance benefits before expiry. The group has declared an interim dividend of 3.00sen per ordinary share for 9M24, compared to 2.05sen in 9M23. We maintain a HOLD rating with a revised TP of RM2.11 (from RM1.88) as we roll forward our valuation basis to 2025 and raise our earnings forecast.

• Key highlights. Zooming in on the Malaysia operation, this segment saw an 14.0% YoY improvement in 3QFY24, contributing RM1,016mn for the current quarter compared to RM888mn in 3QFY23. The better performance from the Malaysia segment was largely due to increased inpatient visits up by 6.5% YoY in 3QFY24.

• Earnings forecast. We have increased our earnings forecast by 8% for FY25 and 10% for FY26, reflecting higher patient throughput and better revenue contributions from KPJ's five new hospitals (Perlis, Miri, Batu Pahat, Bandar Dato Onn, DSH2), which are still under gestation.

• Outlook. We remain optimistic about KPJ, driven by its strong focus on organic expansion. Recently, DSH2 introduced its “Less Scars, Less Pain” campaign in October, running until 31 December 2024, to showcase its expertise in safe, precise, and minimally invasive surgical techniques. To recap, DSH2 offers advanced minimally invasive cardiac surgery (MICS) using cutting-edge endoscopic methods. Given Malaysia's reputation for excellence in cardiology, we believe this initiative will attract more medical tourists. However, we believe the potential for further upside is limited, as the market has already priced in these expectations, with KPJ’s share price rising 82.0% YoY.

Source: BIMB Securities Research - 26 Nov 2024