INVESTMENT HIGHLIGHTS

• FY18 earnings came in within expectations at RM181.6m

• Earnings is supported by the Malaysian’s operation

• Indonesian segment remain loss-making

• The adoption of MFRS 16 to partially depress FY19 earnings.

• Maintain NEUTRAL with a revised TP of RM1.14

FY18 earnings grew by +9.7%yoy. KPJ Healthcare Bhd’s (KPJ) 4QFY18 earnings dropped by -12.5%yoy to RM55.1m. We believe that this was mainly due to under provision of staff cost. Nonetheless, the Malaysian operation’s performance remains intact. This led to higher full year FY18 earnings of RM181.6m (+9.7%yoy). The result is within ours and consensus expectations, accounting for 95.5% and 100.9% of ours and consensus full year FY18 forecasts respectively.

Earnings continue to be supported by the Malaysian operation. The group earnings continue to be supported by the Malaysian operation where profit before tax (PBT) improved by +11.6%yoy to RM278.2m. This is driven by the higher profitability achieved particularly for KPJ Rawang, KPJ Bandar Maharani and KPJ Pasir Gudang as a result of increase in number of patient visit, number of beds and surgeries.

The operational statistics remain healthy. For FY18, we note that the number of admissions for inpatient for Malaysian hospital was up by +4.6%yoy whilst outpatient admission increased by +2.7%yoy. This is contributed by the addition of 14 new consultants from various disciplines. However, occupancy rate for beds and average length of stay remained the same as FY17 at 65.0% and 2.5 days respectively.

Commencement of new hospitals. Three new greenfield developments are slated to open in FY19 are KPJ Bandar Dato Onn (opened on 19 February 2019), KPJ Kuching (2QFY19) and KPJ Miri (2QFY19). In addition, KPJ Ampang Puteri, KPJ’s major brownfield development is in the midst of expansion of the hospital building and targeted to be completed in the 2QFY19. The aforementioned developments are expected to add 437 operating beds (+14.1%yoy increase in operating bed) and hence, will boost the group’s revenue in FY19.

Source: MIDF Research - 20 Feb 2019