KPJ’s 4Q19 core PATMI of RM83.5m (+75.1% QoQ, +51.4% YoY) was above ours and consensus expectations. The deviation was due to higher than expected revenue contribution due to the increase in volume of patients. FY19 revenue increased on the back of better revenue intensity, with higher revenue inpatient (+7.2% YoY) and outpatient (+2.8% YoY). We revise our FY20-21 upwards by 2.9%-4.1% in view of the positive results surprise. Post earnings adjustment our SOP based TP of increases to RM1.27 (from RM1.24). Maintain BUY.

Above expectations. 4Q19 core PATMI of RM83.5m (+75.1% QoQ, +51.4% YoY) brought FY19 sum to RM211.4m (+23.8% YoY). The results came in above ours and consensus expectations at 110% and 114% respectively. The deviation was due to higher-than-expected revenue contribution due to increase in revenue of inpatient (+7.2% YoY) and outpatient (+2.8% YoY) backed by higher volume of inpatient (+5.1% YoY) and outpatient (+3.5% YoY).

Dividend. Declared dividend of 0.5 sen per share going ex on 30 March 2020. (FY19: 2.0 sen per share; FY18: 2.0 sen per share). (42% pay-out ratio)

QoQ. Revenue grew to RM944.0m (+4.1% QoQ) attributed to the increase in number of revenue per inpatient (+0.1%), revenue per outpatient (+0.6%) and volume of outpatient (+0.3%). EBITDA increased by +13.4% due to lower admin and other operating expenses (-10.7%). Core PATMI followed with an increase by +75.1% to RM83.5m.

YoY. Revenue was lifted (+9.3% YoY) backed by improved performance especially contribution from Malaysia (+2.1% YoY) and Indonesia (+30.9% YoY) segment. Malaysia segment improved thanks to existing and new hospitals (KPJ Rawang, KPJ Pasir Gudang, KPJ Tawakkal KL, KPJ Batu Pahat, KPJ Perlis, KPJ Bandar Dato’ Onn and KPJ Seremban) backed by increased in number of inpatients (+7.1% YoY) and outpatients (+4.9%). Others segment improvement (+7% YoY) was mainly due to Indonesia’s Rumah Sakit Medika Bumi Serpong Damai having added 12 beds to expand its current capacity. (+19% in volume of patients). EBITDA grew 18.5% (from RM148.3m) whilst margins expanded 1.4ppts (from 17.2% to 18.6%) due to lower admin and other operating expenses (-7.3% YoY). Core PATMI increased (+51.4% YoY) aided by a tax credit of RM12.5 (vs. 4Q19: -RM22.1m) that arise from the recognition of investment tax allowance.

FY19. Revenue of RM3,604.4m showed improvement of 9.0% (FY18: RM3,308.1m) thanks to contribution from Malaysia (+21.1% YoY) and Indonesia (+30.9%) segment. EBITDA grew by 27.3% (from RM503.1m) whilst margins expanded 2.6ppts to 17.8% thanks to better revenue intensity (+7.2% revenue per inpatient growth). Higher core PATMI of RM211.4m (+23.8% YoY) was attained by lower tax (-33% YoY) due to tax credit in 4Q19.

Outlook. With the new addition of KPJ Miri (21st December 2019), along with newly opened hospitals KPJ Batu Pahat (September 2019) and KPJ Bandar Dato’ Onn (February 2019), this should drive revenue further in FY20. Also we are optimistic of the 6 new hospitals to open over the next 3 years.

Forecast. We tweak our earnings FY20-21 forecast higher by 2.9%-4.1% in view of the positive results surprise.

Source: Hong Leong Investment Bank Research - 27 Feb 2020