Results

• Inline – 9M17 revenue of RM2.4bn translated into PATAMI of RM101.0m, making up 64.7% of HLIB and 65.8% of consensus expectations.
• We deem this to be inline as historically the 4Q has been the seasonally stronger quarter, accounting for 32-36% of full year earnings.
• Inline – 9M17 revenue of RM2.4bn translated into PATAMI of RM101.0m, making up 64.7% of HLIB and 65.8% of consensus expectations.
• We deem this to be inline as historically the 4Q has been the seasonally stronger quarter, accounting for 32-36% of full year earnings.

Dividends

• Declared third interim dividend of 0.38 sen /share (YTD 1.38 sen/share), representing a payout of 59.4% yielding 1.4%.
• Declared third interim dividend of 0.38 sen /share (YTD 1.38 sen/share), representing a payout of 59.4% yielding 1.4%.

Highlights

• YTD: Revenue grew 5% yoy to RM2.4bn attributed to organic growth of existing operations, contributions from clinics opened in 2017 and KPJ Pahang in 2016. EBITDA grew 5% to RM314m due to an uptick in inpatient volume and better case mix. Subsequently PATAMI grew by 4.1% to RM101m.
• Yoy: Revenue grew 5% yoy to RM803.2m namely driven by higher inpatient and outpatient traffic, better case mix and certain existing hospitals experiencing a turnaround in operations in Malaysia. EBITDA grew 3.3% to RM105.2m in tandem with the topline growth. PATAMI decreased by 6% due to a higher effective tax rate in 3Q17.
• Qoq: Revenue grew 1.3% whilst PATAMI dipped by 5% to RM30m due to a one off revised tax payable relating to certain companies within the group, as a result of profit improvement during the quarter.
• Patient volume: Inpatient volumes improved by 2.6% yoy (+0.5% qoq) whilst outpatient volumes improved by 2.8% yoy (+0.7% qoq).
• Revenue per patient: Revenue per inpatient grew by 9.8% yoy (+7.3% qoq) whilst revenue per outpatient grew 4.2% yoy (+3.6% qoq). The expansion was principally driven by organic growth; better case mixes and price revision to account for cost inflation.
• Indonesia: YTD revenue declined by 4% to RM37.6m, whilst EBITDA grew 2% to RM7.0m on the back of lower administrative costs. 3Q17 EBITDA declined by 47% yoy to RM2.2m due to a structural shift in patient mix
• Australia: YTD losses have narrowed to RM3.7m at the EBITDA level (vs. RM6.2m a year ago) on the back of greater economies of scale. Occupancy rate improved to 91% in 3Q17 from 88% in 3Q16.
• We understand that KPJ Perlis is on schedule to open by the end of 4Q17, whilst KPJ BDO is scheduled to complete by 1Q18 and will commence operations by 2Q18.
• YTD: Revenue grew 5% yoy to RM2.4bn attributed to organic growth of existing operations, contributions from clinics opened in 2017 and KPJ Pahang in 2016. EBITDA grew 5% to RM314m due to the return of inpatients and better case mix. Subsequently PATAMI grew by 4.1% to RM101m.
• Yoy: Revenue grew 5% yoy to RM803.2m from RM767.0m namely driven by higher inpatient and outpatient traffic, better case mix and certain existing hospitals experiencing a turnaround in operations in Malaysia. EBITDA grew 3.3% to RM105.2m in tandem with the topline growth. PATAMI decreased by 6% due to a higher effective tax rate in 3Q17.
• Qoq: Revenue grew 1.3% whilst PATAMI dipped by 5% to RM30m due to a one off revised tax payable relating to certain companies within the group, as a result of profit improvement during the quarter.
• Patient volume: Inpatient volumes improved by 2.6% yoy (+0.5% qoq) whilst outpatient volumes improved by 2.8% yoy (+0.7% qoq).
• Revenue per patient: Revenue per inpatient grew by 9.8% yoy (+7.3% qoq) whilst revenue per inpatient grew 4.2% yoy (+3.6% qoq). The expansion is principally driven by organic growth; better case mixes and price revision to account for cost inflation.
• Indonesia: YTD revenues declined by 4% to RM37.6m, whilst EBITDA grew 2% to RM7.0m on the back of lower administrative costs. Yoy EBITDA declined by 47% to RM2.2m due to a structural shift in patient mix
• Australia: YTD losses have narrowed to RM3.7m at the EBITDA level (vs. RM6.2m yoy) on the back of greater economies of scale. Yoy occupancy rate improved to 91% in 3q17 from 88% in 3Q16.
• We understand that KPJ Perlis is on schedule to open by the end of 4Q17, whilst KPJ BDO is scheduled to complete by 1Q18 and will commence operations by 2Q18.

Risks

• Risks to the stock includes lower than expected ramp up in patient revenue due to a laggard price revision, higher than expected drug costs and longer than expected gestation period for its greenfield hospitals coupled with strong pricing competition from smaller niche hospitals.
• Risks to the stock includes lower than expected ramp up in patient revenue due to a laggard price revision, higher than expected drug costs and longer than expected gestation period for its greenfield hospitals coupled with strong pricing competition from smaller niche hospitals.

Forecasts

• Unchanged 

Rating

• We like KPJ as it offers investors exposure to a pure Malaysian hospital play. Its niche lies in its regional hospital
• network that feeds patient into its urban specialist centres. Given the recent share price weakness, we upgrade the stock to a BUY.
• We like KPJ as it offers investors exposure to a pure Malaysian hospital play. Its niche lies in its regional hospital network that feeds patient into its urban specialist centres. Given the recent share price weakness, we upgrade the stock to a BUY.

Valuation

• Maintain our SOP derived TP of RM1.18 (see figure#6)

Source: Hong Leong Investment Bank Research - 24 Nov 2017