KPJ’s FY20 core PATMI of RM134.5m (-36.3% YoY) was above ours and consensus expectations. Core PATMI was arrived after removing EIs totalling to RM24.1m. The deviation was due to lower than expected cost. FY20 revenue decreased due to Covid-19/MCOs which caused lower inpatient (-25.6% YoY) and outpatient (-9.3% YoY) volume. We revise our FY21-22 upwards by 5.2% in view of the positive results surprise. Post earnings adjustment our SOP based TP increases to RM1.12 (from RM1.08). Maintain BUY.

Above expectations. 4Q20 core PATMI of RM49.4m (+45.4% QoQ, -40.8% YoY) brought FY20’s sum to RM134.5m (-36.3% YoY). The latter was arrived after adding back EIs of RM24.1m; huge chunk was on impairment of land and buildings (RM17m). The results came in above ours and consensus expectations at 115% and 105% respectively. The positive deviation was due to lower-than-expected cost.

Dividend. No Dividend Was Declared.

QoQ. Revenue fell (-9.1%) to RM586.8m due to decrease in volume of inpatients (- 11.4%) and surgeries (-5.7%). This was mitigated by the increase in volume of outpatient (+5.4%) mostly on Covid-19 screening tests. EBITDA declined (-20.1%) mainly due to the impairment loss on Jeta Gardens of RM16.2m. After removing total EIs of RM24.1m, core PATMI of RM49.4m (+45.4%) was attained.

YoY. Revenue decreased (-18.3%) attributed to lower showing from Malaysia (-18.4%) and Others segment (-16%). Malaysia segment reported lower inpatient (-32.8%) and outpatient (-6.2%) volumes, that was mainly due to Covid-19/MCOs whereby patients delayed non urgent treatments. Higher costs was incurred due to the newly opened hospitals and new hospital buildings. Indonesia operations also saw a decline in patient volumes (-55%). EBITDA declined (-30.8%) mainly due to the impairment loss as mentioned above. Excluding total EIs of RM24.1m, and lower tax credit of RM3.1m (vs. RM12.5m), core PATMI of RM49.4m (-40.8%) was attained.

FY20. Revenue of RM2.4bn saw a decline (-12.4%) mainly due to lower performance in Malaysia (-12%) and Others (-19%) segment. Overall lower inpatient (-25.6%), outpatient (-9.3%) and surgeries (-14%) volume achieved. This was merely due Covid- 19/MCOs as many elective procedures were postponed or delayed. Jeta Gardens saw occupancy fell to 77% (SPLY: 81%) which resulted in revenue decrease (-5%). EBITDA mirrored topline (-15.9%) and core PATMI followed with a much steeper fall (-36.3%) to RM134.5m on higher tax effective rate of 26.2% (FY19: 17.4%).

Outlook. While the group expects the challenges posed by Covid-19 pandemic to continue in FY21, and focuses on cost management; we are optimistic on the recovery with the anticipated roll-out of the national Covid-19 vaccination programme as well as patients rescheduling back treatments that were previously delayed.

Forecast. We tweak our FY21-22 earnings forecast higher by 5.2% in view of the positive results surprise.

Maintain BUY, TP: RM1.12. Post forecast adjustments our SOP derived TP increases to RM1.12 (from RM1.08). Maintain BUY. We like KPJ as it offers investors exposure to a pure Malaysian hospital play; its niche lies in its domestic geographical hospital network spread that feeds patient into its urban specialist centres.

Source: Hong Leong Investment Bank Research - 19 Feb 2021