2QFY20 core PATMI of RM12.7m (-67.2% QoQ, -71.4% YoY) brought 1HFY20 core PATMI to RM51.2m (-38.6% YoY). The results came in below ours and consensus expectations. YTD revenue fell (-11.9% YoY) due to lower performance from Malaysia (-13% YoY) and Others segment (-16% YoY). This was mainly due to lower hospital activities during MCO period. We cut our FY20-22 forecast by - 10%/-12%/-14% to reflect lower revenue contribution from steeper-than-expected patient decline. Post earnings adjustments, our SOP based TP reduces to RM1.00 (from RM1.09). Maintain BUY, we think the worst is likely over as evident by sequential improvements seen in June-July.

Below expectations. 2QFY20 core PATMI of RM12.7m (-67.2% QoQ, -71.4% YoY) brought 1HFY20 sum to RM51.2m (-38.6% YoY). The results came in below purs and consensus estimates at 30% and 35% respectively. The deviation was due to top line shortfall; despite earlier cuts in forecasts patient flows were still weaker than initially thought to be, no thanks to MCO/Covid-19. No dividend was declared.

QoQ. Revenue decline to RM626.6m (-29.1%) mainly due to MCO period. Malaysia’s segment saw a fall in revenue per bed (-29.7%), volume of outpatient (-27.2%) and inpatient (-44.6%). Apr and May revenue was heavily impacted as it came in at RM164.5m and RM202.8m respectively. Subsequently there was a recovery in June revenue at RM259.3m during RMCO as hospital activities increased. EBITDA too fell (- 26.8%) due to several expenses that remained fixed (staff costs, interest on lease liabilities and borrowing costs) despite the decline in revenue. Core PATMI followed with a decline (-67.2%) to RM12.7m with higher effective tax rate of 41% (1Q20: 26%).

YoY. Revenue fell (-24.9% YoY) caused by lower performance from Malaysia (-27%) and Others (-28%) segment. Malaysia’s segment reported lower revenue per bed (- 33.6%), volume of outpatient (-23.6%) and inpatient (-43.5%); mainly caused by Covid- 19/MCO. EBITDA fell (-28.5%) due to additional expenses incurred in regards to Covid- 19 pandemic (test kits, PPEs, thermo scanners, surgical masks and hand sanitizers). Core PATMI declined (-71.4%) with higher effective tax rate (41% vs. 2Q19: 28%).

YTD. Revenue of RM1,510.8m showed a decline (-11.9%) attributed to lower contribution from Malaysia (-13%) and Others segment (-16%). Malaysia segment saw a decline in revenue (revenue per bed (-19%), volume of outpatient (-9.4%) and inpatient (-21.2%)), paired with fixed costs and higher additional costs due to Covid-19 pandemic. The shortfall in Others segment was mainly due to (i) Indonesian hospitals recorded a deficit number of patients (-42%) and (ii) Jeta Gardens saw lower occupancy at 78% (vs. 1H19: 88%). EBITDA mirrored top line (-14.4%) and core PATAMI followed with a much steeper fall (-38.6%).

Outlook. We are optimistic that KPJ will improve post RMCO, with patients scheduling back surgery/treatments that was previously delayed due to Covid-19/MCO. KPJ will be focussing on its core services while managing its costs apart from adding new areas of service (i.e. tele-medicine and home visits). Also, we believe the new capacity (KPJ Batu Pahat (3Q19), KPJ Seremban (3Q19), KPJ Miri (4Q19), KPJ Ampang Puteri (1Q20)) would drive revenue. As we understand Jun and Jul saw improvement hence, we expect better results in the coming quarters. Furthermore historically, KPJ would perform better in 4Q (c. 31%-39% of full year earnings).

Forecast. We cut our FY20-22 forecast by -10%/-12%/-14% to reflect steeper than expected patient flow declines during MCO.

Maintain BUY, TP: RM1.00. Post earnings adjustments our SOP based TP reduces to RM1.00 (from RM1.09). With sequentially improving numbers in June-July (as guided), we reckon that the worst is behind them. Maintain BUY.

Source: Hong Leong Investment Bank Research - 28 Aug 2020