KPJ’s FY21 core PATAMI of RM73.4m (-45% YoY), came in above expectations, accounting for 133% and 119% of our and consensus’ forecasts respectively. The positive surprise was mainly due to higher-than-expected other income. We tweak our FY22-23f earnings forecast upwards by 2-4%, as we impute higher other income assumption. With that, our SOP-derived TP is raised to RM1.34, from RM1.32. Maintain BUY on KPJ, as we are anticipating more meaningful recovery in patient footfall in FY22, following the relaxation of movement restrictions and potential reopening of international borders.

Beating estimates. 4Q21 core PATAMI of RM40.9m (+3.2x QoQ, -17% YoY) brought FY21 core PATAMI to RM73.4 (-45% YoY). The results came in above our and consensus estimates, accounting for 133% and 119% of full-year forecasts respectively. The positive surprise was due to higher-than-expected other income. Core PATAMI was arrived at after adjusting for one-off items (impairment of trade receivables and PPE, as well as subsidiary interest’s disposal loss) amounting to RM22.4m.

Dividend. Declared DPS of 0.2 sen for FY22, goes ex on 30 Mar 2021. (FY21: 0.55 sen)

QoQ. Revenue was flat (-1.4%) despite turnover generated from hospital operations increasing by 1.3%. This was due to lower pharmaceutical revenue (-52%) recorded, as KPJ disposed its investment in Teraju Farma during the quarter. Better contribution from hospital operations was supported by the increase in inpatient visits (+29%) as well as higher number of surgeries performed (+16%). Coupled with lower tax expense (-45%) and higher other income (+3.0x), core PATAMI swelled by 3.2x.

YoY. Revenue reported an 11% YoY growth, on the back of increased inpatient (+3%) and outpatient (+23%) visits. Active management of Covid-19 cases, provision of vaccination and treating decanted patients also contributed to the topline growth. Despite share of profits from associates growing by 6.8x, core PATAMI was still down by 27%, due to the absence of tax credits recognition in 4Q21, which has led to higher tax expense.

YTD. Revenue was 10% higher due to an overall increase in business activities (i.e. higher Covid-19 screening, treating Covid-19 patients, vaccination services). However core PATAMI was 45% lower, due to higher operating costs arising from creeping SOP compliance cost.

Outlook. Despite the recent resurgence in Covid-19 cases, we do not expect KPJ’s operations to be severely impacted this time around, as the Malaysia government does not intend to reinstate a total lockdown in the country. The potential reopening of international borders would also bode well for KPJ, as its recovery can be accelerated by the arrival of medical tourists.

Forecast. We tweak our FY22-23f earnings forecast upwards by 2-4%, as we raise our other income assumption.

Maintain BUY, TP: RM1.34. Post earnings adjustment, our SOP-derived TP is raised to RM1.34, from RM1.32 previously. Maintain BUY on KPJ, as we expect to see more meaningful recovery in patient volume following the relaxation of pandemic restriction.

Source: Hong Leong Investment Bank Research - 21 Feb 2022