Maybank IB Research keeps Buy calls on KPJ, Kossan


For KPJ, Maybank Investment Bank Research projects EPS growth of 4% in FY20E and 10% in FY21E, underpinned by its fast bed capacity growth of 8% in FY20E (FY19E: +3%).

KUALA LUMPUR: Maybank Investment Bank Research has Buy calls on KPJ Healthcare and Kossan in the healthcare segment.

It said on Tuesday that for KPJ, it projects EPS growth of 4% in FY20E and 10% in FY21E, underpinned by its fast bed capacity growth of 8% in FY20E (FY19E: +3%).

“Our sum-of-parts based TP of RM1.05 is also conservative, implying 10 times EV/EBITDA (-1SD to 5-year mean) as we impute for the drug price control concern.

“We also have a BUY rating on Kossan, on (i) we project EPS growth of 15% in FY20E on its sales volume growth of 16% in FY20E and stable margin as we expect its higher productivity to offset the potential average selling price (ASP) pressure; and (ii) its 12 months forward P/E of 21x (mean: 22x, +1SD to mean: 27 times) is a 21%-46% discount to Top Glove/Hartalega, ” it said.

On the healthcare outlook, the research house said drug price control, a key overhang on private hospitals, could be off the table, but the certainty may only materialise from 2H20 onwards when alternative measure is being formally announced by the government.

For the glove sector, demand-supply environment is balanced for now and glove players are able to adjust their ASPs to pass on the impact of a Ringgit appreciation.

Hospitals: Fortis’ court hearing, drug price control Two key events to watch: (i) Fortis’ court hearing on Feb 3,2020. A positive outcome i.e. a ruling that Fortis did not violate its “status quo” court order, could see IHH’s share price re-rate;

And (ii) The proposed drug price control (Phase 1), which was expected to take place in early2020, may not materialise after all, potentially because the drug prices at Malaysia are already fair vs. comparable countries. Instead, the private hospitals could be required to publish their prices.

A formal announcement of the latter by the Ministry of Health would remove the overhang on KPJ.

Maybank Research said as for gloves, demand-supply is balanced presently, and the glove manufacturers have been able to raise ASPs (c.+1%) to pass on the higher minimum wage (+9% from Jan 2020).

Hence, the current operating environment would allow the glove players to adjust their ASPs to pass on the recent weakness in USD vs. RM (-2% in one month).

“However, we note that the global glove purchases have picked up strongly since Sep 2019 and there is the risk of glove purchasers overstocking in 4Q19-1Q20.

“Hence, we caution that a temporary supply surplus may take place in 2Q20. For 2020, we estimate that the effective capacity growth from the Global Top 5 players is 15% (2019: 8%), with bulk of the new capacity commencing in 1H20, ” it said.

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