• Values resurface after recent selldown with SOP TP of RM1.18, or 25.5% upside. We like KPJ as it offers investors exposure to Malaysia’s hospital play. Its niche lies in its network that feeds patient into its urban specialist. Going forward, we opine that growth will continue to be driven by higher contribution from newly opened hospitals and improvement in contribution coming from its more matured hospitals coupled with the benefit from booming medical tourism. At RM0.94, KPJ is currently trading at undemanding 20x FY19 P/E, which is 16.6% and 59% lower against its 10-year historical average of 24x and IHH’s 49x, respectively, and supported by strong EPS CAGR of 12% from FY17-19.

• Beneficiary of stronger RM. We also view that the improving ringgit against USD bodes well for KPJ as it will reduce the volatility and the cost of medical consumables, which in turn will result in higher profitability. Furthermore, the possibility of a new round of price revision exercise this year would boost FY18 revenue in the absence of price revisions in 2017.

• Poised for a downtrend line breakout. Since hitting a 52-week high of RM1.14 on 21 Sep, KPJ’s share prices underwent a 24% correction to a low of RM0.87 (13 Feb) end before ending at RM0.94 yesterday. With the formations of Tweezers bottom and higher lows pattern in daily chart as well as the hammer candlestick formation in weekly chart, coupled bottoming up technical oscillators, KPJ is poised for an immediate downtrend resistance breakout near at RM0.995. A successful breakout above RM0.995 will spur greater upside towards RM1.07 (76.4% FR) before reaching our LT target at RM1.14. On the flip side, failure to hold near RM0.91 (support trendline) and RM0.87 supports may weaken share prices lower towards RM0.835 levels. Cut loss at RM0.865.

Source: Hong Leong Investment Bank Research - 16 Mar 2018