KPJ’s 1QFY18 core net profit increased by 5.4% yoy to RMRM42.2m, accounting for 25% and 24% of our and consensus’s full-year forecasts, respectively. Continued growth in patient volumes, especially for the Malaysian operations reaffirms our view of continued improvements in private healthcare consumption. The pipeline of new hospitals opening in 2018-19 should continue to support KPJ’s growth. Maintain BUY with an unchanged TP of RM1.22.

1QFY18 Results Within Expectations

KPJ recorded a 5.4% yoy growth in net profit to RM42.2m which was in line with our and consensus estimates (25% of our and 24% of consensus full-year estimates). This increase was due to a 5.6% yoy growth in revenue on the back of higher overall patient admissions (4.2% yoy) and slightly higher average revenue per patient of RM1,139.5 (+1.4% yoy). Continued recovery in patient volume growth was seen with outpatients totalling 645,618 (+4.1% yoy) and inpatients at 76,538 (+5.2% yoy). Capacity utilisation was also healthy at 69% in 1QFY18 vs 68.3% in 1QFY17 and 65% in 4QFY17. This note marks a transfer of analyst coverage.

Malaysian Operations Improve Further

The Malaysian segment continued to perform well, with revenue increasing by 6% yoy due to a higher number of patients and more complex cases recorded. However, the Indonesian segment (1.2% of revenue) was relatively weak, recording an 18% decrease in revenue due to a lower number of patients and also strengthening of RM causing forex losses during the quarter.

Network Expansion Plans Remain Intact

Currently, KPJ’s greenfield expansion plans remain intact, with the 90-bed KPJ Perlis successfully opened on 17 May 2018, while KPJ Bandar Dato’ Onn is slated to open in 3Q2018. For the East Malaysia side, BDC Kuching Specialist Hospital and KPJ Miri are expected to open in 2Q2019. This, in addition to their existing hospital expansions should continue to provide growth in 2019-20, we believe.

Maintain Buy With Unchanged 12M TP of RM1.22

We make no changes to our estimates and maintain our BUY call, with an unchanged SOTP-based TP of RM1.22. We continue to like KPJ for its: (1) strong expansion plans; (2) exposure to the growing Malaysian private healthcare market (Malaysia’s aged population growth of 5%), (3) recovery from a low base, and 4) attractive valuation vs. regional peers. Downside risks: (1) margin compression; and (2) declines in patient volume.

Source: Affin Hwang Research - 31 May 2018