KPJ set to gain from opening of new hospitals

KPJ's Pasir Gudang Specialist Hospital

PETALING JAYA: KPJ Healthcare Bhd is set to see improved earnings going forward from the opening of new hospitals and resilient demand for quality private healthcare.

BIMB Securities Research, in a report earlier this week, said the company is set to open three hospitals this year, namely KPJ BDO, Kuching and Miri.

Revenue is also set to gain from the group’s mature hospitals, against an ageing nation backdrop.

“However, we remain cautious over potential earnings dilution from gestation period of new hospitals,” said the research house.

It is maintaining a “hold” call on the stock with a RM1 target price.

“Risks to our call are lower inpatient volume and higher cost than expected,” said BIMB.

CGSCIMB Research, meanwhile, is maintaining an “add” call to the stock.

“We keep our ‘add’ call with a lower target price of RM1.25, based on 27.4-times 2020 price-to-earnings ratio, its five-year mean, as we tweak our earnings forecast.

“The stock is currently trading at about 1.5 standard deviation below its five-year mean.

“Concerns over losses from its new hospitals have been priced in.

“We remain positive on its expansion plans to capture future patient growth and as it expands its range of services and facilities offered at its hospitals,” it said.

Meanwhile, AmInvestment Bank Research said earlier this week that KPJ’s first quarter core net profit of RM40.3mil came in below expectations, accounting for 20.8% and 21.1% of its and general full-year forecast respectively.“KPJ’s core earnings before interest, taxes, depreciation, and amortisation (ebitda) climbed 13.7% to RM122mil (after excluding the MFRS 16 impact of RM23mil) while core ebitda margins improved one percentage point to 14.1%.

“We believe the improvement is partly attributed to the group’s cost optimisation initiatives although slightly offset by the newly opened KPJ Perlis and KPJ Bandar Dato’ Onn which is still in its gestational period.”

The research house also said KPJ’s interest expense doubled to RM40.7mil due to the effect of the MFRS 16 adoption, which saw a RM15.8mil finance cost on lease liabilities.

“KPJ’s revenue from the Malaysian segment expanded 5.2% to RM839.3mil on the back of increased patient visits and surgeries in KPJ Rawang, KPJ Pasir Gudang and KPJ Johor and the newly opened hospitals.”

CGSCIMB, meanwhile, said KPJ’s start-up losses are to be offset by patient growth and timely openings of new hospitals.

“With the new greenfield/brownfield hospitals, we expect start-up losses to dent earnings in the short-term.

“We reckon that staggered bed openings will help to contain losses and a higher-than-expected patient volume will quicken the hospitals’ turnaround time.

“Separately, revenue should grow on the back of new capacity expansions and ramp-up of operations at existing hospitals. We expect patient growth to continue,” the research house said.

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