KPJ’s 1QFY23 results beat expectations on stronger-than-expected business rebound as the pandemic ended. For FY23, we project its patient throughput to grow 14% (vs. 12% in FY22) and bed occupancy rate (BOR) of 70% (vs. 58% in FY22) as the private healthcare services market resumes its growth path post the pandemic. We raise our FY23F net profit by 5% but keep our FY24F numbers. Our TP remains at RM1.50 based on FY24 earnings. Reiterate OUTPERFORM.

1QFY23 net profit more than doubled to RM52m, accounting for 25% and 24% of our full-year forecast and the full-year consensus estimate, respectively. We consider the results as above expectation as historically its 2H have performed better than 1H (i.e. for past three years pre-COVID, 2H accounted for an average of between 53%-62% of full-year earnings). The variance against our forecast came largely from a stronger-than-expected bed occupancy rate.

YoY, 1QFY23 revenue rose 29%, thanks to higher patient throughput (+4%) and higher BOR of 70% (compared to 48% in 1QFY22) as demand for non-COVID related services rebounded including elective surgeries following the transition to endemic phase. Better overhead absorption (on an improved turnover) drove a 26% improvement in EBITDA which we believe was also boosted by narrowing losses from its new hospitals (which are EBITDA positive), i.e. KPJ Bandar Dato’ Onn, KPJ Perlis and KPJ Miri. As a result, 1QFY23 net profit more than doubled, albeit from a low base a year ago.

QoQ, 1QFY23 revenue rose 6% due to lower throughput from inpatient (+5%) and outpatient (-1%) with booster from higher bed occupancy rate (BOR) of 70% compared to 64% in 4QFY22. However, 1QFY23 net profit fell 28% to RM52m due to a higher effective tax rate of 27% compared to 16% in 4QFY22. A 1st interim dividend of 0.65 sen was declared which came in within our expectation.

Outlook. Looking ahead into FY23, we project KPJ’s patient throughput to grow 14% (vs. 12% in FY22) and BOR of 70% (vs. 58% in FY22) as the demand for private healthcare services resumes its growth path post the pandemic.

Forecasts. We raise our FY23F net profit by 5% (as we raise our assumption on BOR from 66% to 70%. However, we keep our FY24F earning unchanged. Our TP remains unchanged at RM1.50 based on 28x FY24F EPS, in line with its regional peers. There is no adjustment to TP based on ESG given a 3-star rating as appraised by us (see next page).

We continue to like KPJ for: (i) the low “price elasticity of demand” for healthcare service, which mean players are less vulnerable to high inflation as they could pass on the higher cost, (ii) being a reopening play, especially for elective surgeries, and (iii) its strong market position locally with the largest network of 29 private hospitals (vs. only 16 of IHH Healthcare’s Malaysia operation in the second place). Reiterate OUTPERFORM.

Key risks to our call are: (i) regulatory risk, (ii) the lack of political will to roll out a national health insurance scheme, and (iii) longer-than-expected gestation periods for its newer hospitals.

Source: Kenanga Research - 31 May 2023