Investment Highlights

• 3QFY17 earnings below expectations at RM30.6m

• Revenue boosted by organic growth from existing and new hospitals

• Overseas operating performance remains lackluster

• Operational headline numbers remain intact

• FY17-18F earnings revised down by -11.6% and -8.1%

• Maintain NEUTRAL with a revised TP of RM1.06 per share

Below expectations. KPJ’s 3QFY17 normalised earnings came in at RM30.6m which is below our and consensus’ expectations, accounting for 70% of earnings forecasts respectively. Revenue grew by +4.7% yoy but earnings dipped by -6.0% yoy. On a quarterly sequential basis, KPJ’s revenue increase was marginal by +1.3% whilst earnings declined by -4.8%. In addition, a third interim dividend of 0.38sen was also declared for the quarter.

Revenue boosted by organic growth from existing and new hospitals. In 3QFY17, KPJ’s increase in revenue was mainly due to the combination of organic growth from existing hospitals as well as the increasing revenue from newly opened hospitals across all markets. The revenue from Malaysian hospitals increased by +5.0% yoy attributable to the increase in revenue generated by its newly opened hospital KPJ Pahang. The increase in revenue is also contributed by existing hospitals which have improved last financial year. However, earnings dipped during the quarter due to higher operating expenses.

Overseas operations remain lackluster. KPJ’s Indonesian cumulative operations revenue is still lower by -4.3% yoy. However, EBITDA climbed by +1.9% yoy mainly due to the economies of scale of Rumah Sakit (RS) Medika Bumi Serpong Damai. Meanwhile, its Australian aged care service also reported improvements in revenue of +3.2% yoy which is mainly attributed to the higher capacity of the retirement village with additional beds which has been opened in phases from mid of 2015 until May 2016. Meanwhile, on the PBT basis, it remains loss making due to higher operating expenses incurred.

Operational headline numbers remain intact. In 3QFY17, we note that the number of admissions for inpatient was up marginally by +1.6%yoy whilst outpatient admission was down marginally by - 0.3%yoy. Inpatient admission was recorded at 215,499 for the 3QFY17 vs 212,187 in 3QFY16 while occupancy rate for beds declined to 65.7% (vs 67.5% in 3QFY16) with an average length of stay of 2.55days.

Source: MIDF Research - 24 Nov 2017