Below Are Key Takeaways From KPJ’s 3Q23 Results Briefing:

Review

of 3Q23 Performance

To recap, KPJ’s 9M23 revenue and net profit rose 19.4% and 89.3% YoY to RM2.6bn and RM189.2mn respectively. Excluding the disposal gain of Bumi Serpong and KPJ Medica amounting to RM26mn, we gather that 9M23 core net profit stood at circa-RM163.2mn (RM67.3mn in 3Q23). Operationally, 3Q22 bed occupancy rates improved to 73% (vs. 66% in 3Q22), highest in recent history as inpatients increased 13% YoY. Meanwhile, average revenue per inpatient and outpatient grew 7% and 5% YoY to RM7,021 and RM286 respectively.

Separately, we understand that there are 5 new hospitals still in the gestation period before breaking even. KPJ Dato’ Onn and Batu Pahat are already EBITA positive, while DSH2, KPJ Miri and KPJ Perlis are on track to be EBITDA positive by end-2024.

Growth on Track

KPJ’s new President & Managing Director, Mr. Chin shared that the group will focus on: i) improving existing business to increase operational efficiency, and ii) core business in Malaysia through transformation in digital, branding, business, culture. Note that the group is planning to dispose KPJ Dhaka (Bangladesh) and Jeta Gardens (Australia) in 2024. Overall, KPJ will optimise assets/costs and focus on sustainable revenue growth by opting for brownfield expansion, increasing specialties and enhance customer experience.

As far as expansion is concern, KPJ targets to increase the number of beds to 4,101 in 2024 from 3,589 currently. The construction of KPJ Kuala Selangor (90 beds) will likely be completed by 1Q25. Meanwhile, we are upbeat on KPJ’s strategy (10-12% market share in Malaysia) to further grow its medical tourism. The group targets to double its medical tourism revenue in 2024, targeting patients from Indonesia and MENA region.

Set to Close the Year Strongly

Despite the expected year-end trend of lower patients, we believe that 4Q23 performance will be close to 3Q23 (core profit of RM67.3mn). This will be aided by lower tax rate due to investment tax allowance. In our forecast, we expect FY23 EBITDA margin to improve to 23.0% (vs. 22.8% in FY22 while earnings will grow by 36.5% to RM234.8mn.

Impact

We raise our FY23/24/25 earnings forecasts by 4.2/5.4/5.3% after increasing our revenue per inpatient by circa-5% and lower tax rate of 2pts.

Valuation

Following the earnings revision, we increase our TP to RM1.40/share (previously RM1.32) based on STOP valuation. However, we downgrade the stock to Hold from Buy as YTD share price has surged by 35%.

Source: TA Research - 30 Nov 2023