KPJ excellent choice for portfolio balancing

KUALA LUMPUR: OSK Investment Research expects KPJ Healthcare to maintain its impressive nancial form as well as strengthen its position as the market leader in the private healthcare sector.

The research house said on Friday its expectations were underpinned by the healthcare group’s network expansion and business diversication strategy.

“We maintain our buy recommendation with a target price of RM4.48, based on a 10 times price-to-earnings ratio (PER) on FY09 earnings per share,” it said.

OSK Research said KPJ was still the cheapest healthcare stock in the region, trading at an undemanding PER 2008 of 5.8 times, while its regional peers are trading at 10 times to 20 times FY09 PER.

“Although liquidity may be a concern, KPJ is an excellent choice for portfolio balancing and as a long-term investment with a steady dividend and relatively resilient earnings,” it added.

Backed by 19 hospitals across the country, KPJ is Malaysia’s largest private hospital network. It aims to expand its network by acquiring at least one new hospital a year with special focus on locations with growing demand for private healthcare.

The research house said it believed changes in government regulations which would make it tougher for small stand-alone private hospitals to operate, would open up more merger and acquisition (M&A) opportunities for the group.

Describing the healthcare business as resilient and a necessity, OSK Research believed KPJ would be able to weather the impact of an economic slowdown.

Compared to its regional peers, KPJ had the smallest exposure to medical tourism, which will be badly hit by an economic slowdown. KPJ had the most defensive earnings compared to its regional peers.

OSK Research said KPJ did not plan to deploy large investments to set up overseas hospitals even though there were such invitations.

"KPJ views such investment as risky and will instead concentrate on providing hospital management services to its overseas operation.

"We believe that KPJ is being prudent by putting more focus on the domestic market, which is a less risky investment as there are many untapped opportunities in the local healthcare sector in view of the growing number of players venturing into the sector,” it said.

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