KPJ's Pasir Gudang Specialist Hospital
KUALA LUMPUR: KPJ Healthcare
plans to explore capex-lite opportunities, including shifting its focus to brownfield expansions after the existing greenfield developments are rolled out.
CIMB Research said on Wednesday this shift in strategy is positive as it will reduce the need to fund heavy development expenditures which should help KPJ manage its borrowings.
“We project core earnings of RM58mil to RM60mil in 4Q18F on the back of patient growth of 2% on-year. This is 2%-4% lower on-year due to a one-off patient boost in the corresponding quarter, and as KPJ has to absorb additional start-up losses from the commencement of KPJ Perlis in May 2018.
“This translates into 2018F net profit of RM183mil, up 15% on-year and 1.6% higher than Bloomberg consensus, on account of its improving operational statistics,” it said.
To recap, CIMB Research hosted KPJ Healthcare at its recent Malaysia Corporate Day. During the meeting, KPJ Healthcare indicated that it will further expand its network of 25 hospitals this year through the opening of four new hospitals - KPJ Bandar Dato’ Onn (150 beds), KPJ Miri (90 beds), KPJ Batu Pahat (150 beds) and KPJ Kuching (150 beds).
“Coupled with its brownfield expansion plans, we are positive on this as it will further strengthen its presence nationwide and provide space to capture more patient volumes in the future.
“We estimate that KPJ Healthcare's capacity of over 3,000 beds will grow c.8% on-year by end-2019F following its planned capacity expansion activities,” it said.
CIMB Research was not overly concerned about the start-up losses from the opening of the greenfield hospitals as we expect a turnaround in two out of the three hospitals in 2019F, on the back of an improved outlook and a ramp-up of its operations.
“Separately, our analysis shows that most of its recent greenfield hospitals took about three years to turn around at the bottomline. This is positive for KPJ due to its shorter gestation period and compares favourably with the industry’s three- to five-year turnaround period on average.
“The ramp-up in its hospitals which are in the growth phase (less than 10 years old) could also partially offset the start-up losses from the greenfield expansion currently in the pipeline. We gather that these hospitals will be able to deliver healthy double-digit revenue and patient growth following the ramp-up in its operations,” it said.
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