1Q15 earnings of MYR33.9m met expectations, up 12.2% YoY on the back of higher revenue from its existing and newly-opened hospitals.Maintain NEUTRAL with a revised TP of MYR4.25 (1% upside). Although we are positive on KPJ’s aggressive expansion strategy domestically, we believe all the positives have been reflected at current price levels. An interim DPS of 1.75 sen was declared.

• Results in line. We deem KPJ Healthcare’s (KPJ) 1Q15 earnings of MYR33.9m in line with expectations, at 22%/24% of our/consensus FY15 earnings forecasts as 1Q is typically the weakest quarter, affected by seasonal factors such as the Lunar New Year. 1Q15 earnings rose 12.2% YoY on the back of a 17.8% YoY increase in revenue given higher revenue from its existing and newly-opened hospitals. Meanwhile, 1Q15 EBITDA margin was up slightly at 11.9% (1Q14: 11.4%). An interim DPS of 1.75 sen was declared (FY14: 1.45 sen).
• Key highlights. 1Q15 revenue across all segments registered positive YoY growth. Vis-à-vis 1Q14, its Indonesian hospital operation is in the black and losses at its aged care facility have narrowed by 55% YoY to MYR1.2m. However, we note that its support services and corporate segment is still in the red.
• Forecasts and key risks. We make no changes to our forecasts. Key risks include: i) a delay in the opening of new hospitals, ii) a longer-thanexpected gestation period per hospital, and iii) losing the legal case against two Hospital Penawar shareholders.
• Maintain NEUTRAL with a revised TP of MYR4.25. We nudge up our TP to MYR4.25 (from MYR4.24) after rolling forward our base year to 2016 (from 2015), taking into consideration the current outstanding share base and applying an unchanged P/E of 28x, in line with its average 3-year historical P/E. Although we are positive on KPJ’s aggressive expansion strategy domestically, we believe it has been well reflected at current share price levels.