1Q17 in Line With Our Expectation

KPJ’s 1Q2017 net profit increased by 12%yoy to RM38.3m and accounted for 25% of our full year estimates, which was in line with our/consensus expectations. While patient volume growth has yet to show meaningful recovery, higher revenue intensity/inpatient contributed to top line growth. There were some slight delays in opening of new hospitals but still fall within our forecast of 4 new facilities in next 15 months. We maintain Buy with TP of RM4.71 based on assumptions of private healthcare spending recovery and new hospital openings to provide top line growth.

1Q17: Decent Set of Results

KPJ’s 1Q17 net profit of RM 38.3m was broadly in line with our/consensus estimates. The revenue increased by 6.7% on the back of higher average revenue/patient of RM1,145 (+9%yoy) while the overall patient admission growth remains lacklustre. In 1Q17, outpatient number was 620,450 (- 2%yoy) and inpatient number was 72,735 (-1%yoy). Similar to 4Q16, KPJ’s effective tax rate was lower because of the benefits from tax losses has been utilized from certain companies within the Group. The group declared interim dividend of 1.8 sen.

Expansions Are Still Within the Expected Schedule

Currently KPJ has 4 greenfield expansions, namely 90-bed KPJ Perlis (opening in 4Q17), 150-bed KPJ Specialist Hospital Bandar Dato' Onn (opening in 1Q18), 96-bed KPJ Miri Specialist Hospital (opening in 2Q18), and 150-bed KPJ Kuching Specialist Hospital (opening in 3Q18). While the scheduled openings of new hospitals are delayed by 1 to 2 quarters, they still fall within our forecast of seeing 4 new hospitals opening in next 15 months to provide inorganic growth in FY17/18. Also, KPJ has 7 brownfield expansions to add another 530 beds over FY17/20. We believe that these pipelines will help KPJ to deliver sustainable growth in the long run.

Maintain Buy With Unchanged TP of RM4.71

We fine-tune our 2017-19E net profit upon the release of KPJ’s 2016 annual report. We maintain Buy with an unchanged SOTP-based 12 month TP of RM4.71. We continue to like KPJ for its: (1) strong expansion plan; (2) exposure to the Malaysian private healthcare market (Malaysia’s aged population growth of 5%), (3) recovery from low base, and 4) cheap valuation among regional peers (30xFY17PE). Key downside risks for KPJ would be: (1) margin compression; and (2) declines in patient volume.

Source: Affin Hwang Research - 29 May 2017