Period

4Q15/12M15

Actual vs. Expectations

12M15 reported PATAMI of RM132.6m (-7% YoY) which came in marginally within our expectation, at 95% or our forecast. However, stripping out a RM46m ESOS charge, core PATAMI of RM178.6m (+45% YoY) came in 25% and 23% above our and market consensus’ full-year forecasts. The positive deviation form our result was due to lower-than-expected losses in the Malaysian operations.

Dividends

A fourth interim single-tier DPS of 1.75 sen was declared bringing 12M15 DPS to 7.0 sen which is within our expectation. Key Result

Highlights

QoQ, 4Q15 topline fell 3% but mitigated by higher revenue from Malaysia (+6%), largely contributed by increase of revenue from the new hospitals namely KPJ Klang, KPJ Rawang, KPJ Pasir Gudang and KPJ Maharani and organic growth from existing operating units. However, 4Q15 reported PATAMI fell 35% to RM24.6m largely due to an additional provision for the Employee Share Option Scheme. Interestingly, Indonesia reported a profit of RM2.2m due to higher revenue generated from Rumah Sakit Bumi Serpong Damai, which has reported two quarters of profits over the last twelve quarters.

YoY, 12M15 revenue rose 7% largely contributed by increase of revenue from the new hospitals namely KPJ Klang, KPJ Rawang, KPJ Pasir Gudang and KPJ Maharani and organic growth from existing operating units. However, stripping out the one-off ESOS charge of RM46m, core PATAMI came in at RM178.6m (+45% YoY).

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 the gradual opening of more beds since it needs to maintain a certain required ratio of staff per hospital.

Change to Forecasts

We are raising our FY16E and FY17E earnings by 11.6% and 13.7%, respectively, due to the better-thanexpected results.

Rating & Valuation

Correspondingly, out TP is raised from RM3.97 to RM4.43 based on unchanged 27x FY16E EPS. Upgrade to Market Perform (from Underperform).

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 - 1 Mar 2016