Results

• Inline – FY17 revenue of RM3.2bn translated into PATAMI of RM165.6m, making up 101.5% of HLIB, however accounting for 112% of consensus expectations.

Dividend

• Declared single tier interim dividend of 0.5sen/ share.

Highlights

• YTD: Revenue grew 7.1% yoy to RM3.2bn attributed to organic growth of existing operations and the ramping up in operations of new hospitals within the group (KPJ Klang, KPJ Rawang, KPJ Pasir Gudang, KPJ Bandar Maharani and KPJ Pahang).Subsequently PATAMI grew by 11.1% to RM165.6m due to an uptick in inpatient volume and better case mix.

• Yoy: Revenue grew 13.3% yoy to RM833.7m namely driven by higher inpatient and outpatient traffic and better case mix. PATAMI grew by 17.5% in tandem with the inpatient volume growth on the back of greater promotional activities and healthcare tourism efforts by the group.

• Qoq: Revenue grew 13.3% whilst EBITDA margins expanded by 1.8ppts to 14.9% on the back of greater cost management. PATAMI grew by 99% to RM60.9m on the back of reversal of provisions from 3Q17.

• Patient volume: Inpatient volumes improved by 5.0% yoy (- 1.0% qoq) whilst outpatient volumes improved by 2.1% yoy (- 0.3% qoq).

• Revenue per patient: Revenue per inpatient grew by 5.8% yoy (-2.2% qoq) whilst revenue per outpatient grew 6.9% yoy (-2.3% 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 18% to RM48.8m, whilst EBITDA declined to RM0.1m (from RM15.1m yoy) due to a structural shift in patient mix

• Australia : YTD losses have narrowed to RM3.1m at the EBITDA level (vs. RM4.8m a year ago) on the back of greater economies of scale. The board has approved the divestment of Jeta Gardens, which is expected to be completed in 2018.

• We understand that KPJ BDO is scheduled to complete by 1Q18 and will commence operations by 2Q18 whilst KPJ Miri will be completed by 3Q18 and commence operations by 4Q18. YTD: Revenue grew 5% y growth of existing operations, contributi opened in 2017 and K to RM314m due to the mix. Subsequently PA

• Yoy: Revenue grew 5% namely driven by higher inpatient and o case mix and certain turnaround in operati RM105.2m in tandem with decreased by 6% due to

• Qoq: Revenue grew 1.3% whilst PATAMI RM30m due to a one off certain companies wi improvement during the quarter.

• Patient volume: Inpatient vo (+0.5% qoq) whilst outpatie (+0.7% qoq).

• Revenue per patient: Revenue p yoy (+7.3% qoq) whils (+3.6% qoq). The expa growth; better case mix cost inflation.

• Indonesia : YTD revenues d EBITDA grew 2% t administrative cost RM2.2m due to a structural shift in

• Australia : YTD losses ha EBITDA level (vs. economies of scale. Y 3q17 from 88% in 3Q16.

• We understand that KP end of 4Q17, whilst 1Q18 and will commen

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 in patient revenue due t expected drug costs period for its greenfie competition from smaller niche hospitals.

Forecasts

• Forecasts unchanged. 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 advise investors to accumulate. Maintain BUY . We like KPJ as it offers invest Malaysian hospital play network that feeds pat Given the recent share price weakness, w to a BUY .

Valuation

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

Source: Hong Leong Investment Bank Research - 27 Feb 2018