12M16 core PATAMI of RM153.3m (-5.3% YoY) came in within expectations at 99% and 100% of our and consensus full-year forecasts, respectively. No dividend was declared, which was below expectations. Maintain MARKET PERFORM and target price of RM4.38 based on unchanged 27x FY17E EPS.

Results within expectations but not dividends. 12M16 core PATAMI of RM110.8m (+59% YoY) came in within expectations at 72% and 79% of our and consensus full-year forecasts after excluding a one-off provision for ESOS payments (RM13.8m). No dividend was declared in this quarter which was below expectations.

Key Result Highlights

QoQ, 4Q16 top line fell 3% to RM745m largely due to lower average revenue per inpatient (-5%). Revenue growth came from new hospitals, namely KPJ Kuantan, KPJ Klang, KPJ Rawang, KPJ Pasir Gudang and KPJ Maharani and organic growth from existing operating units. However, 4Q16 core PATAMI rose 27% to RM41.9m excluding a one-of provision for ESOS payment (RM12.7m), gain from disposal of shares in an associate (RM13.1m), and gains from disposal of PPE (RM9.9m) compared to RM32.8m in 3Q16 due to a lower effective tax rate of 16% compared to 30% in 3Q16.

YoY, 12M16 revenue rose 6% contributed by the increase in revenue from new hospitals, namely KPJ Kuatan, KPJ Klang, KPJ Rawang, KPJ Pasir Gudang and KPJ Maharani and organic growth from existing operating units. This brings 12M16 core PATAMI to RM153.3m (-5.3% YoY RM161.8m) after excluding a one-off provision for ESOS payments (RM27.8m), gain from disposal of PPE (RM9.8m) and gains form disposal of shares in associates (RM13.9m) dragged down by losses at Jeta Gardens.

Outlook. Earnings growth is expected to be pedestrian over the next few quarters. In FY17, KPJ Perlis (Greenfield, 90 beds) and KPJ Seremban (new block with additional 90 beds) is expected to commence operations by Jun 2017. Elsewhere, brownfield expansion includes Taiping, Sri Manjung and KPJ Johor are expected to operate by end 2017. In Indonesia, there are plans to acquire an operator with a 150-bed private hospital. Elsewhere, 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%.

Maintain MARKET PERFORM and target price of RM4.38 based on unchanged 27x FY17E EPS.

Source: Kenanga Research - 22 Feb 2017