3Q24 Review

To recap, KPJ’s 3Q24 revenue and PBT increased by 13.9% and 2.4% YoY, reaching RM1bn and RM139.6mn respectively. This resilient performance was driven by higher inpatient and outpatient volumes, which rose 6% and 2% YoY to 103,228 and 784,437 respectively. Additionally, the average revenue per inpatient and outpatient increased by 4% and 5% YoY to RM7,311 and RM299 respectively. The number of operational beds in 3Q24 increased to 3,787, compared to 3,589 beds in 3Q23, leading to 1%-pt decline 3Q24 bed occupancy rates (BOR) to 72%. The BOR would have been 76% on a same bed basis.

Meanwhile, KPJ’s health tourism revenue grew by 22% YoY to RM168mn in 9M24, outpacing the MHTC’s projections of an 11% YoY growth to RM2.5bn for the Malaysia health tourism industry.

Management shared that the 5 hospitals currently in the gestation period are improving. Only KPJ Miri is reporting LBITDA while DSH2, KPJ Batu Pahat, KPJ Dato’ Onn and KPJ Perlis have achieved EBITDA positive as of 9M24. We understand that the performance of DSH2 (currently around 120 beds) has exceeded expectations with average occupancy rates of 75% since May 2024. More importantly, management guided that all 5 of these hospitals are on track to reduce its FY23’s RM137mn losses by half in FY24.

Expansion is on Track

We gathered that KPJ is on track to hit 4,100 operational beds by the end of FY24 (vs. 3,787 beds in 3Q24). Most of the additional beds would come from brownfield expansion via KPJ Puteri (60 beds) and KPJ BDO (60 beds). Meanwhile, the group’s 30th hospital, KPJ Kuala Selangor (68 beds) is expected to open in 1Q25. Thereafter, KPJ would focus on organic growth and is expected to reach c. 4,750 operational beds by the end of 2027. CAPEX guidance for FY24 remains at RM300-320mn for FY24.

As part of the expansion plans, management shared that the group has surpassed its initial target of recruiting 86 consultants, having added 120 consultants YTD. Looking ahead to 2025, the group plans to hire more than 120 additional consultants.

Key Initiatives for 2025

For FY25, the group would focus on the local market, health tourism and in key areas such as capacity, capability and intensity to sustain its growth momentum. Management plans to optimise operations by building a network of Center of Excellence in hospitals, focusing on orthopaedic, oncology, neurology, heart and lung and robotic surgeries. This would allow the group to raise revenue intensity and offer advanced care in critical medical fields, given Malaysia’s aging population and prevalence of non-communicable diseases (NCDs).

Impact

We raise FY24/25/26 earnings by 3.3/6.5/5.8% after increasing our inpatients volume assumption by 2.2% and better cost efficiency.

Valuation

Maintain Hold on the stock with a higher TP of RM2.58 (previously RM2.22) based on SOTP valuation and a 3% ESG premium.

Source: TA Research - 27 Nov 2024