Stock Name: KPJ
Company Name: KPJ HEALTHCARE BHD
Research House: OSK

KPJ Healthcare Bhd
(July 27, RM3.64)
Maintain buy at RM3.71 with higher target price of RM4.62 (from RM3.92): With KPJ committed to pursuing its expansion strategy, we believe it will maintain its lead in the private healthcare sector as well as sustain growth. Its community-based business model has enabled KPJ to build strong brand equity and loyalty as well as allowed the group to grow with the community it is in. The recent openings of the new Tawakal Hospital and Penang Specialist Hospital in August last year are strong testimony to its business model, through which it has increased capacity and broadened its service offerings in line with rising demand from the local community.

We see KPJ recently turning up the heat with more aggressive advertising activities, judging from the number of outdoor and electronic media advertisements placed locally and abroad. We are positive on this move as we have long held the belief that there is a sizeable untapped medical tourism market for Malaysia. Given the right marketing and promotion strategies as well as its undisputed position as the country's leading private healthcare provider, KPJ stands to benefit the most from tapping this huge market potential.

We have upgraded our earnings forecasts for FY2010 and FY2011 by 6.5% and 6.3% respectively, after taking into account the earnings contribution from Sabah Medical Centre, of which the acquisition was completed recently, as well as higher margins assumption.

We maintain our buy recommendation at higher target price of RM4.62 from RM3.92 previously, premised on our earnings upgrade as well as rolling over our EPS from FY2010 to FY2011. Our target price is based on 18.5 times FY2011 EPS. Although KPJ is no longer the cheapest healthcare stock in the region following its sharp price appreciation over the last one year, the stock is still trading at a significant discount to its comparable peer, Parkway, which currently commands 27 times PER on FY2010 EPS. ' OSK Research, July 27


This article appeared in The Edge Financial Daily, July 28, 2010.