KEY INVESTMENT HIGHLIGHTS

• 9MFY24 normalised earnings up +35%yoy; within expectations
• Revenue up +15%yoy due to increase in patient visits and higher bed capacity
• Positive on KPJ's prospects amid strong fundamentals, but risks on competition and cost pressures remain
• Maintain BUY with TP: RM2.54

Maintain BUY, TP: RM2.54. KPJ Healthcare Berhad (KPJ)'s 9MFY24 earnings came in within our earnings estimates at 72%. As such, we maintain our BUY call for KPJ, with a target price at RM2.54.

9MFY24 normalised earnings up +35%yoy. KPJ's 9MFY24 revenue was up by +14.5%yoy to RM2.9b. Meanwhile, 9MFY24 normalised earnings gained +34.8%yoy to RM247.3m. The higher performance was largely contributed by the higher number of patients visits and increase in bed capacity.

Higher contribution from increased BOR. Revenue for KPJ's hospitals accounted for RM2.8b in 9MFY24 (+14.8%yoy), with a PAT gain of RM248.2m (+4.4%yoy). This was largely contributed by the increase in patients visits evidenced by increase in BOR and bed capacity.

Last leg of support from Australia operations. Collective revenue from the others business segment dropped by -47.7%yoy to RM50.9m, while LAT gained 5-fold to end at a deficit of -RM5.6m from a deficit of - RM35.5m in 9MFY23. KPJ's operations in Australia had been divested in early CY24, however, the abolishment of provision for Jeta Gardens are still supporting this segment.

Fundamentals supports hospital subsector. Malaysia's economic growth is expected to gain momentum by the end-year. Hence, we opine that the healthcare sector to remain vibrant, fuelled by strong spending by the public and private patients. Budget 2025 had also allocated RM45.3b to the Ministry of Health, to support healthcare quality and access to Malaysian citizens. KPJ is anticipated to continue optimising its assets, expanding bed capacity and increase talent acquisition in the remainder of FY24.

No changes to earnings estimate. All in all, we have made no changes to our earnings forecast at this juncture, as we believe KPJ is in the right trajectory of its FY24 performance. Hence, we maintain our BUY call for KPJ with a retained target price of RM2.54, based on pegging a PER of 29x to an EPS25 of 8.7sen. The PER is the healthcare sector's 3-year average, as we take note on the sectoral growth driven by notable healthcare megatrends in 2024-2025, and Budget 2025. Nevertheless, the downside risks remain to be the highly competitive talent market in the healthcare industry and the ongoing cost pressures on equipment, pharmaceuticals and labour.

Source: MIDF Research - 26 Nov 2024