• KPJ’s 4Q20 core net profit grew by 35% qoq to RM46m due to the recognition of investment tax allowance. Operationally, 4Q20 EBITDA slipped by 4% qoq due to lower revenue (-9%), cushioned by lower costs
• Full-year core net profit of RM132m (-37% yoy) was within market and our expectations. KPJ declared a lower DPS of 1.2 sen for 2020 (2.0 sen in 2019)
• We tweak our 2021-22E EPS by 1-2% and raise our price target to RM0.99 (from RM0.97). Maintain HOLD. At 26.5x 2021E PER, KPJ is trading close to its 8-year average forward PER of 25x and looks fair to us

4Q20 EBITDA Slipped by 4% Qoq But Core Net Profit Grew on Tax Credit

KPJ reported a modest set of results – 4Q20 core net profit grew by 35% qoq to RM46.2m due to the recognition of investment tax allowance (RM3.1m tax credit in 4Q20 vs RM20.6m tax expense in 3Q20). Operationally, KPJ’s 4Q20 EBITDA slipped by 4% qoq to RM140.9m due to a lower revenue (-9.1% qoq), partly cushioned by lower operating costs (-10.5% qoq). Notwithstanding the robust underlying earnings and boost from the investment tax allowance, KPJ’s 4Q20 reported net profit fell by 25.6% qoq to RM25.3m due to an impairment loss on Jeta Gardens (RM16.2m) and impairment loss on its investment quoted and unquoted shares (RM3.6m).

2020 Core Net Profit of RM132m Was Within Market and Our Expectations

Cumulatively, KPJ’s 2020 core net profit fell by 36.9% yoy to RM131.7m due to lower revenue (-12.4% yoy), higher depreciation (+8.4%), lower associate earnings and a higher effective tax rate. Tracking the weaker earnings, KPJ’s 2020 dividend per share came in lower at 1.2 sen (from 2.0 sen in 2019). All in, the results were broadly within market and our expectations.

Steep decline in occupancy rates; however, outpatient arrivals and number of surgeries are recovering

The reimplementation of CMCO and higher Covid-19 cases had affected KPJ’s 4Q20 business operations. Its average bed occupancy rate fell from 50-52% in 3Q20 to 41% in Nov/Dec 2020 while the number of inpatient arrivals fell by 11.4% qoq in 4Q20. Nonetheless, an increase in outpatient arrivals (+5.4% qoq) and higher revenue intensity had helped to cushion the impact of lower bed occupancy. In December 2020, KPJ reported 234,000 outpatient arrivals (2nd highest monthly outpatient arrivals in 2020) and performed 7,656 surgeries – comparable to the average monthly surgeries of 7,573 during Jan-Feb 2020 (prior to the Covid-19 pandemic).

Source: Affin Hwang Research - 19 Feb 2021