KPJ’s 3QFY20 core PATMI of RM34m (+168% QoQ, -28.7% YoY) brought 9MFY20’s sum to RM85.2m (-35% YoY). The results came in below ours and consensus’ estimates due to top line shortfall and higher costs incurred. YTD revenue declined (-9.9%), with lower contribution in Malaysia (-11%) and Others (-20%). This was mainly cause by Covid-19 impact where fewer patients seek treatments. We reduce our FY20-22 estimates by 22%/8%/9% to reflect in decline in revenue caused by Covid-19. Despite our forecasts cuts, as we roll forward to FY21, our SOP based TP increases to RM1.08 (from RM1.00). Maintain BUY.

Below expectations. 3QFY20 core PATMI of RM34.0m (+168% QoQ, -28.7% YoY) brought 9MFY20’s sum to RM85.2m (-35.0% YoY). The results came below ours and consensus full year estimates at 57% and 61% respectively. The deviation was due to a combination of top line shortfall and higher costs incurred.

Dividend. Declared a third interim dividend of 0.4 sen per share going ex on 14 Dec 2020. (9MFY20: 0.8 sen per share; 9MFY19: 1.5 sen per share).

QoQ. Revenue improved to RM850.7m (+35.8%) on the back of patient recovery from the weak 2Q. Overall inpatient and outpatient numbers improved, +50.3% and 30.9% respectively. Focussing on Malaysia’s segment, it saw improvement in revenue per bed (+39.1%), volume of inpatient (+49.1%) and outpatient (+28.6%). Furthermore, occupancy jumped to 51% from a weak 34% in 2QFY20. EBITDA mirrored top line (+35.9%). Core PATMI followed with a rise (+168.4%) to RM34.0m with lower effective tax rate of 37% (2QFY20: 41%).

YoY. Revenue fell (-6.1%) mainly caused by lower contribution from Malaysia (-7%) and Others (-26%) segment. Malaysia segment reported lower revenue per bed (- 10.9%), volume of inpatient (-23.8%) and outpatient (-6.2%), mainly caused by Covid19/MCO whereby patients opted to postpone non-urgent treatments. EBITDA declined (-1.9%) on the back of improved revenue intensity (revenue per inpatient and outpatient grew +10.6% and +5% respectively). Core PATMI decreased (-28.7%) with higher effective tax rate (37% vs. 3QFY20: 29%).

YTD. Revenue of RM2.36bn showed a decline (-9.9%) attributed to lower performance from Malaysia (-11%) and Others segment (-20%). Overall, inpatient and outpatient numbers reduced, -23.1% and -10.4% respectively. Malaysia segment saw a decline in revenue (revenue per bed (-16.2%), volume of inpatient (-22.1%) and outpatient (- 8.3%)), paired with fixed costs and higher additional costs due to Covid-19. Despite the reduction in hospital revenue, the laboratory revenue from Lablink improved (+28%) which cushioned the impact. The shortfall in Others segment was mainly due to (i) Indonesian operation reduction of patients by 50% and (ii) Jeta Gardens saw lower occupancy at 77% (vs. SPLY: 83%). EBITDA mirrored topline (-10.2%), and core PATAMI followed with a much steeper fall (-35.6%) on slightly higher tax effective rate of 32.8% (9MFY19: 29.6%).

Outlook. We are hopeful for a stronger 4Q in line with the recovery seen in 3Q. We expect more patients scheduling back treatments that was previously delayed, moreover 4Q is a seasonally strongest quarter. More will be shared in today’s briefing.

Forecast. We cut our FY20-22 forecasts by 22%/8%/9% to reflect in decline in revenue caused by Covid-19.

Maintain BUY, TP: RM1.08. Despite our forecast cuts, as we roll forward to FY21, our SOP based TP increases to RM1.08 (from RM1.00). Maintain BUY.

Source: Hong Leong Investment Bank Research - 1 Dec 2020