KEY INVESTMENT HIGHLIGHTS

• 1QFY20 earnings came in at RM38.5m, lower by -4.1% year-over-year

• Earnings was impacted by implementation of MCO in March by the Malaysian Government

• Lower revenue recognised across the group following lower number of patients recorded

• First interim dividend declared of 0.5sen per share for 1QFY20

• Maintain NEUTRAL with a revised TP of RM0.94

1QFY20 earnings missed expectations. KPJ Healthcare Bhd’s (KPJ) 1QFY20 earnings came in at RM38.5m (-4.1%yoy) which was below ours and consensus expectations, accounting for 18.9% and 19.1% of our full year FY20 forecasts respectively. While its revenue grew marginally by +1.8%yoy, the group’s earnings declined slightly by -4.1%yoy mainly attributable to the lower revenue recorded by the Malaysian hospitals year-over-year following the implementation of the Movement Control Order (MCO) by the Malaysian government. The MCO which was effective from 18th March 2020 resulted in lower revenue recorded for the Malaysian hospitals operation in March at RM268m vs >RM300m in revenue recorded in January and February prior to the implementation of MCO.

Higher revenue offset lower inpatients and outpatients . The group’s revenue in 1QFY20 was mainly supported by the Malaysian operations despite recording a marginal growth of +0.6%yoy. This was mainly attributable to higher revenue per patients recorded as inpatients and outpatients numbers dipped by -6.5%yoy and - 0.9%yoy respectively during the quarter under review following the implementation of MCO in March.

Lacklustre performance from international operations. Meanwhile, revenue from its Indonesian operations dipped by - 9.0%yoy due to lower revenue recognised from RS Medika Permata Hijau (RSMPH) which saw lower revenue by -32%yoy due to the decline in number of patients during the quarter by -48%yoy. This was however, offset by the revenue from Rumah Sakit Bumi Serpong Damai (RSBSD) which grew by +13%yoy supported by higher outpatients number. Additionally, Jeta Garden recorded a lower revenue by -11.0%yoy due to lower occupancy rate during the quarter.

First interim dividend declared. In line with its lower earnings, a first interim dividend of 0.5sen per share was declared for 1QFY20. This represents a 55.6% payout from its 1QFY20 EPS of RM0.9sen which translates to an annualised yield of 2.0% to yesterday’s closing price. That said, the quarter’s dividend payout is similar to its 1QFY19 dividend payout of 0.5sen.

Source: MIDF Research - 11 Jun 2020