KPJ favoured by analysts

PETALING JAYA: KPJ Healthcare Bhd, a leading public-listed private hospital operator in Malaysia, appears to be the favourite of research houses at the moment because of its growth potential and undemanding valuations.

AmInvestment Bank Research, which has chosen KPJ as its top pick in the healthcare sector, said KPJ’s earnings before interest, taxes, depreciation and amortisation margins improved 3.7 percentage points year-on-year (y-o-y) to 16.7% in the first quarter of 2019 on the back of cost-optimisation initiatives.

The research house noted that KPJ’s average revenue per inpatient grew 9.7% y-o-y in the first quarter, while also noting that it plans to add more hospitals to its stable.

“KPJ opened KPJ Bandar Dato’ Onn in Johor Baru in February 2019 and is targeting to add another 670 beds in 2019 via new hospitals, as well as the expansion of existing hospitals,” it said.

“KPJ will be opening four new hospitals (Miri 96 beds; Kuching 150 beds; KPJ Batu Pahat 90 beds; Kluang Specialist 90 beds), as well as expanding four existing hospitals (KPJ Seremban 87 beds; KPJ Ampang 87 beds; KPJ Klang 40 beds; Sri Manjung 30 beds),” AmInvestment Bank Research said.

It has tagged a “buy” call with a fair value rating of RM1.14 on KPJ, noting that the stock is its top pick because of its vast network of hospitals.

Meanwhile, Kenanga Research said in its report on Friday that KPJ’s valuation appears to be attractive again.

This is because the stock is currently trading at a 20% and 40% discount compared to the historical average of 27.5 times and regional peers of 35 times, respectively.

“KPJ’s earnings growth is expected to come from narrower losses and profitability for hospitals built two to three years ago, including KPJ Rawang, Maharani, Pasir Gudang and Pahang,” Kenanga said, rating KPJ an “outperform” with a target price of RM1.20.

It noted that the group is also confident that startup costs from new openings would be absorbed by incremental ramp-ups from earlier openings, and steady contributions from matured hospitals.

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