Despite the underperformance of IHH and KPJ
KUALA LUMPUR: Affin Hwang Capital research has downgraded its call on KPJ Healthcare Bhd
to hold with a lower target price of RM1 from RM1.30 previously.
"We cut our 2019-21E earnings for KPJ by 7%-13%, mainly to account for the adoption of the new accounting standard, MFRS16; lower patient volume growth due to weaker consumer sentiment; and start-up costs from new hospital expansion," it said on Tuesday.
In a note, the research house said it expects the healthcare provider's recovery in patient volume growth to be short-lived as it sees weakness in the consumer sentiment index, which shows high correlation with the growth.
Affin Hwang added that it is also cautious of potential start-up losses from the greenfield expansion which may dilute near-term earnings.
Despite recording stronger operational statistics and higher revenue in 2018, core earnings declined 2% year-on-year on higher tax and depreciation due to expansion, it said.
Meanwhile, the research house noted that KPJ's Indonesian operations reported narrower pre-tax losses and positive earnings before interest, tax, depreciation and amortisation in 2018, having fallen into the red in 4Q17 due to new national healthcare policies.
"With the on-going realignment of the business mix to enhance service offerings targeting more private patients, KPJ aims to achieve profit before tax turnaround for its Indonesia operations by end-2019," it said.
It added that the 57%-owned aged-care business in Australia is targeted to be completed by 2H19.
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