Following  the  release  of  its  1QFY13  results,  we  met  up  with  KPJ’s management  for  an  update  on  its  operations.  All  in,  we  remain convinced  that  its  fundamentals  remain  solid  despite  the  slightly disappointing  1QFY13 earnings  owing to start-up losses at some of its newly  opened  hospitals.  Maintain  BUY,  with  our  FV  unchanged  at MYR7.30,  based  on  26x  FY14  P/E.  KPJ  remains  our  top  pick  in  the healthcare sector.

- Expansion  plans  on  track.  KPJ  currently  commands  an  18%  market share  of  the  private  healthcare  sector  in  Malaysia  with  2,600  hospital beds  in  22  hospitals,  making  it  one  of  the  largest  private  healthcare provider in the country.  The group registered 2.4m outpatients  and 250k inpatients 250k in FY12. Management confirmed that its expansion plans are on track,  with its Sabah specialist hospital  scheduled  to commence operation by 3Q13 while its proposed Muar specialist hospital  will also be due for  completion  by 4Q13. Based on its other ongoing expansion projects,  we  estimate  that  KPJ’s  bed  capacity  would  breach  3,200  by 2016. 

- Eyeing a bigger  presence in Indonesia.  On the regional front, KPJ is looking to expand its presence in Indonesia  via organic growth as well as via potential  acquisitions. Management has set up a dedicated team in Indonesia  to scout for M&A opportunities. Currently, the group owns 200 hospital beds via  its stake in RS Medika Permata Hijau and RS Media Bumi Serpong Damai. Management intends to expand to at least 1,000 beds over the next three to five years, targeting an eventual listing.

- Malaysia to have aged healthcare services by 2018.  To complement its  existing offerings in Malaysia, KPJ plans to roll out  the country’s first aged care services by 2018. Leveraging on its experience in operating 51%-owned Australia’s Jeta Gardens, we understand that  Management is considering setting up  the  first such facility in the country in Iskandar Malaysia. This is  likely  to  take place after the completion of  the group’s Bandar  Dato’  Onn  specialist  hospital,  for  which  the  first  phase comprising 150 beds would be completed by 2014.

Source: RHB