Despite the underperformance of IHH and KPJ
KUALA LUMPUR: KPJ Healthcare
’s FY18 core net profit of RM182mil was in line with expectations and made up 99.3% of CIMB Equities Research and 100% of Bloomberg consensus forecasts.
The research house said on Wednesday it expects 7% earnings growth in FY19F, driven by the turnaround of its loss-making hospitals and ramp-up of new hospitals.
“Maintain Add with a higher target price of RM1.28 (from RM1.27), still pegged to 2020F price-to-earnings (P/E) of 28 times, its five-year historical mean,” it said. The last traded price was RM1.08.
KPJ’s FY18 core net profit rose 10% on-year on the back of 1) increase in number of patients, 2) stronger average revenue per patient, and 3) increased profitable case mix.
Higher patient volumes and number of surgery cases were registered by KPJ Rawang, KPJ Pasir Gudang and KPJ Bandar Maharani, all in their growth phase.
Its 4Q18 core net profit fell 10% on-year due to increase in depreciation and interest expense following the group’s expansion throughout the year; this was expected, CIMB Research said.
“KPJ delivered a stronger-than-expected patient volume growth of 3% on-year in 2018 as new consultants joined the group during the year, and due to the ramp-up of operations at its relatively newer hospitals.
“We expect patient volume to continue its growth momentum on the back of an expected higher number of patients, driven by the growth in traffic at its hospitals which are in the growth phase (less than 10 years old) as well as from hospital expansions planned for 2019F.
“We gather that hospitals in the growth phase are able to deliver healthy double-digit revenue and patient growth as they ramp-up their operations,” it said.
CIMB Research expects KPJ to continue to deliver healthy earnings and improved margins in 2019F on the back of higher patient visits and prudent cost management, improved performance of its hospitals currently in the gestation phase (one of which have already turned profitable).
This may be partially offset by the start-up losses from the expected opening of four new hospitals this year.
“Based on our analysis, most of KPJ’s greenfield hospitals have a shorter gestation period of about three years, which compares favourably with the industry’s three- to five-year turnaround period. This indicates that the drag of start-up losses will likely only dent its earnings in the short term.
“We view the expansion as a way to strengthen its network, and for future patient growth. We remain positive on KPJ’s plans to explore capex-light opportunities as this will reduce the need to fund heavy development expenditures, in line with its efforts to manage its finances,” it said.
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