Period

3Q15/9M15

Actual vs. Expectations

9M15 PATAMI of RM108m (+16% YoY) came in above our expectation at 82% or our forecast. However, the results were within market expectation at 73% of consensus’ full-year forecast. The positive variance from our forecast was due to higher-than-expected performance in its Malaysian operations.

Dividends

A third interim single-tier DPS of 1.75 sen was declared which brings 9M15 DPS to 5.25 sen. Key Result

Highlights

QoQ, 3Q15 reported PATAMI rose 6% to RM38m largely anchored by the Malaysian segment which offset the losses from aged-care and support services and a 2.4% increase in inpatient admission.

YoY, 9M15 net profit rose 16% due to higher earnings contribution from Malaysia (+7%), underpinned by reduced losses from new hospitals namely KPJ Rawang and KPJ Maharani, Serpong and lower losses from support services.

Outlook

Earnings growth is expected to be pedestrian over the next few quarters. In Indonesia, we expect losses in Bumi Serpong Damai to persist over the next several quarters due to difficulty in attracting doctors to its establishment leading to lower bed utilisation of 40%. However, this is expected to be buffered by the profitable Medika Permata Hijau.

Going forward, KPJ is targeting to open KPJ Perlis and KPJ Pahang Specialist. Additionally, KPJ is incurring higher staff costs due to: (i) the gradual opening of more beds since it needs to maintain a certain required ratio of staff per hospital, and (ii) KPJ employing more staff in its headquarters to support on-going projects.

Change to Forecasts

We are raising our FY15E and FY16E earnings by 7.5% and 6.2%, respectively, due to the better-than-expected results.

Rating & Valuation

Maintain UNDERPERFORM. However, TP raised from RM3.74 to RM3.97 based on unchanged 27x FY16E EPS.

The stock is currently trading at PERs of 30x and 28x on FY15E and FY16E, which appear rich as compared to its pedestrian net profit growth.

Risks to Our Call

The key upside risk to our earnings forecasts is the faster-than-expected turnaround of its newly opened hospitals.

Source: Kenanga Research - 27 Nov 2015