We recently visited KPJ’s newest hospital, KPJ Damansara Specialist Hospital 2 (DSH2), boasting top-grade facilities with luxurious ambience. The hospital was launched in September 2022 and is currently running at an occupancy rate of c.20%, based on 60 operational beds. With 5 centre of excellences and other niche services available, KPJ DSH2 is set to attract not just the local patients, but aims at being the leading player in healthcare tourism as well. Maintain BUY on KPJ, with an unchanged SOP-derived TP of RM1.27.

Its 29th establishment. KPJ DSH2 is a purpose-built 300-bedded hospital recently launched in September 2022. The hospital currently has 60 licensed beds opened currently and is projected to add another 60 beds by end-CY23 and end-CY24 respectively. Being a quaternary level hospital, KPJ DSH2 is also house to several centre of excellences, including (i) bone, joint and spine centre, (ii) brain, nerves and spine centre, (iii) cardiac and respiratory centre, (iv) minimally invasive surgical centre, and (v) diagnostics and interventional radiology centre. KPJ DSH2 also has most of the specialities available, with the exception of oncology, whereby radiotherapy is available at its sister hospital, KPJ Damansara Specialist Hospital 1. KPJ DSH2’s occupancy rate is c.20% presently and the hospital expects to breakeven at EBITDA level and PAT-level by CY23 and CY25 respectively.

Medical tourism. KPJ DSH2 aims to be the leading player in Malaysia when it comes to healthcare tourism, similar to Bumrungrad International Hospital in Bangkok and Mount Elizabeth in Singapore. At this point, KPJ DSH2’s patient mix is skewed towards more foreign patients, but the Group aims to achieve a foreign patient to local patient ratio of 50:50 eventually. The higher portion of medical tourists in KPJ DSH2 is partly due to a lack of local insurers as panel in this hospital. That being said, we do note that a major insurer is expected to come on board in February, which would help to attract more local patients going forward considering that patients typically prefer cashless facilities, with cash-paying patients only accounting for 30% of the Group’s patient mix. Separately, with the borders of China now reopened, we expect KPJ DSH2 to benefit from this, considering that Chinese healthcare travellers are the second largest contributor to Malaysia’s healthcare tourism scene in CY19 and one of the most sought after treatment for this target group is IVF treatment, a niche service that is offered in KPJ DSH2 as well. On a side note, KPJ as a group has generated c.RM130m from medical tourism in FY22, exceeding its original target of RM120m.

Taking the lead. KPJ DSH2 is the first smart hospital in KPJ’s network, spearheading the Group’s digital transformation journey. A new Hospital Information System (nHIS) will be implemented in KPJ DSH2, using analytics and insights to provide data-backed intelligence. The hospital will also be equipped with digital operating theatres that comes with remote real-time monitoring and consultation. Upon successful implementation, this will be replicated across other hospitals within the network and KPJ is targeting to kick off its rebranding exercise in 2023, aiming to transform more of its existing hospitals to provide quaternary care.

Forecast. Unchanged.

Maintain BUY, TP: RM1.27. Maintain BUY, with an unchanged SOP-derived TP of RM1.27. Our rating is premised on (i) its exposure to a defensive sector, and (ii) performance sustained by encouraging patient volume recovery.

Source: Hong Leong Investment Bank Research - 17 Jan 2023