KPJ’s reported a core PATAMI of RM68.9m (+35% QoQ, +61% YoY), bringing FY22 core PATAMI to RM165m (+2.2x YoY). The stellar performance came in above both our and street estimates at 109% and 114% respectively – key variance was due to stronger-than-expected revenue growth. We raise our FY23- 24f earnings forecasts by 2-6%, as we raise our patient volume assumption. Maintain BUY on KPJ with higher SOP-derived TP of RM1.40 (from RM1.27 previously) after lifting our forecast and rolling over our valuation base year to FY23f. Our BUY call is premised on (i) its exposure to a defensive sector, as well as (ii) improving local and foreign patient volume.

Above expectations. KPJ’s reported a core PATAMI of RM68.9m (+35% QoQ, +61% YoY), bringing FY22 core PATAMI to RM165m (+2.2x YoY). The stellar performance came in above both our and street estimates at 109% and 114% respectively – key variance was due to stronger-than-expected recovery in revenue. 4Q22 core PATAMI was arrived at stripping out EIs amounting to c.RM3.2m.

Dividend. Declared dividend of 0.6 sen for FY23, goes ex on 20 Mar 2023. FY22: 2 sen (FY21: 0.55 sen).

QoQ. Revenue reported a 2% decline on the back of lower patient volumes (-2%). We believe this was due to patients delaying treatment during the year-end festive season, as well as doctors being away for year-end holidays. This has also resulted in lesser surgeries performed (-180 cases QoQ), and bed occupancy rate (BOR) falling to 64% (vs 3QFY22: 66%). Despite an overall decline in business activities, core PATAMI saw a 35% growth due to lower tax expense.

YoY. Revenue improved by 15% mainly due to increased patient footfall (+5%). We believe the patient volume growth was partly contributed by the return of foreign patients, as the Malaysian borders reopened on 1 April 2022. Together with improved operational efficiency arising from better BOR (4QFY22: 64%, vs 4QFY21: 46%), core PATAMI grew by 61% YoY.

YTD. KPJ’s revenue improvement of 13% was achieved on the back of growing patient volumes (+10%) as well as higher BOR (FY22: 58%, vs 4QFY21: 43%). Core PATAMI grew at a much faster pace (+2.2x vs SPLY) due to strong BOR recovery and better cost management practices.

Outlook. KPJ is expected to continue benefitting from the influx of medical tourists, especially after the reopening of China’s borders. Prior to the pandemic, Chinese medical tourists are the second largest contributor to the local healthcare tourism scene, making up 5.1% of CY19’s healthcare traveller revenue. This will also help to boost KPJ DSH2’s patient volumes, as IVF treatment is highly sought after by the Chinese patients, and KPJ DSH2 offers this niche treatment. With one of the major local insurer onboarding KPJ DSH2 in February, we can expect to see more local patients going forward. Current patient mix in KPJ DSH2 is skewed towards more foreign patients, but aims to achieve a mix of 50:50 eventually.

Forecast. We raise our FY23-24f earnings forecasts by 2-6%, as we raise our patient volume assumption.

Maintain BUY, raise TP to RM1.40. Maintain BUY on KPJ with higher SOP-derived TP of RM1.40 (from RM1.27) after lifting our forecast and rolling over our valuation base year to FY23f. Our BUY call is premised on (i) its exposure to a defensive sector, as well as (ii) improving local and foreign patient volume.

Source: Hong Leong Investment Bank Research - 20 Feb 2023