KPJ  recorded  healthy 1Q14 results with net profit of  MYR32.3m, slightly above our and consensus estimates.  Its  net profit was down by 8.2% qo-q but rose  21.9% y-o-y,  attributed  mainly to higher contributions from Malaysian  hospitals.  We  continue  to  like  KPJ’s  regional  presence  and plans  to  expand  its  business  scale.  Maintain  NEUTRAL  and  FV  of MYR3.23.

• Earnings  slightly  above  estimates.  KPJ  Healthcare  (KPJ)’s  earnings came in  slightly above our and consensus estimates, with its MYR32.5m net  profit  reaching  25.5%  of  our  FY14  forecast.  KPJ’s  1Q14  earningswere  down  8.2% q-o-q  but  increased  21.9% y-o-y. Revenue  was  slightly softer  at  MYR602.7m (from MYR634.5m in 4Q13), a drop  of  5.0% q-o-q but  up  10.6% y-o-y  –  mainly on  higher contribution from  local  hospitals. Net  margin  rose  0.1%  q-o-q  and  0.7%  y-o-y  respectively.  An  interim dividend of 1.45 sen was declared for 1Q14.
• Stronger  revenue  from  Malaysian  hospitals.  Malaysian  hospitals registered  0.6% q-o-q and  10.8%  y-o-y  growth in revenue  from existing and  newly-opened  hospitals  in  1Q14.  Indonesia  recorded  a  handsome contribution  (+116.0% q-o-q; +56.4% y-o-y),  with PT Khidmat Perawatan Jasa  Medika  contributing  its  full  quarter’s  earnings  vis-à-vis  only  one month previously. Revenue from its aged care facility remained constant.
• Latest  developments.  KPJ  Rawang  was  recently  completed  and  has been  operational  since  early  April.  The  joint-venture  (JV)  with  the Bangladesh  Government  to  operate  the  newly-built  Sheikh Faizatunnessa  Mujib  Memorial  KPJ  Specialist  Hospital  in  Dhaka commenced  on  14  April.  It  is  estimated  that  the  JV  should  contribute about 5.0% to KPJ’s total revenue moving forward.
• Risks.  We  foresee  that  KPJ’s  earnings  could  be  affected  should  there be:  i)  weak  patient  admission,  ii)  low  average  revenue  per  patient admission, and iii) higher than expected opex.
• Maintain  NEUTRAL.  We  keep  our  FY14-15  forecasts,  NEUTRAL  call and  MYR3.23  FV  for  now  based  on  an  unchanged  26x  FY14  EPS. Compared with regional peers (19-29x FY14 P/Es; 11-18x EV/EBITDAs), we  find  that  KPJ  is  fairly  valued  as  we  feel  that  its  earnings  shouldcontinue  to  be  squeezed  by  the  opening  of  new  hospitals  and  lower contributions from the newly opened ones.

Source: RHB