KPJ’s FY17 core net profit increased by 8% yoy to RM166m, accounting for 108% and 112% of our and consensus’s full year forecast respectively. 2% and 5% growth in outpatient and inpatient volume respectively in 4Q17 resulted in 13% yoy in total revenue, reaffirming our view that KPJ’s is poised to benefit from recovery of private healthcare consumption. The opening of new hospitals is largely on tracks, providing inorganic growth on 2018 onwards. Maintain BUY with an unchanged TP of RM1.22.

2017 Results Above Our Expectations

4Q17 revenue increased by 13% yoy to RM834m on the back of 15% yoy growth in Malaysia operations. Both outpatient and inpatient grew by 2% and 5% yoy on the back of continued recovery in patient volume growth. The average revenue/patient increased strongly by 11% underpinned by more promotional activities and healthcare tourism efforts. Indonesian operations reported a decrease of 45% yoy in revenue to RM11.2m due to lower number of patients. Note that Australian operations were reported under discontinued operations as KPJ is in the midst of disposing Jeta Garden, its care centre for the aged in Australia. 2017 net profit came in at RM166m (+8% yoy), accounting for 108% and 112% of our and consensus expectations. The better-than-expected result was mainly due to its associates, Al’Aqar Healthcare that reported 155% net profit growth arising from gain in fair value adjustments in its properties.

Improvement in Malaysian Operations

In 3Q17, Malaysia operation’s EBITDA increased by 18% yoy to RM134m as new doctors joined the Group and contributed to an increase of 8% for its inpatient and outpatients treated at KPJ’s hospitals. KPJ’s new hospital openings are still within the expected schedule, except KPJ Kuching’s opening that is pushed from 3Q18 to 1Q19. A total of 325 new beds (11% increase) within next 15 months are expected to provide inorganic growth from FY18.

Maintain Buy With Unchanged 12M TP of RM1.22

We maintain our Buy call, with unchanged TP of RM1.22. We continue to like KPJ for its: (1) strong expansion plans; (2) exposure to the Malaysian private healthcare market (Malaysia’s aged population growth of 5%), (3) recovery from a low base, and 4) attractive valuation vs. regional peers (average: 30x FY17E PE). Downside risks: (1) margin compression; and (2) declines in patient volume.

Source: Affin Hwang Research - 27 Feb 2018