Kenanga maintains 'outperform' on KPJ, TP raised to RM1.20

KUALA LUMPUR: Kenanga research has raised its FY20 earnings forecast for KPJ Healthcare Bhd following the announcement of better-than-expected earnings.

According to the research house, KPJ's FY19 core net profit of RM211mil was 18% higher year-on-year (y-o-y) and exceeded its and consensus estimates by 10% and 15% respectively.

Kenanga said the the above-expected performance was owing to the recognition of investment tax allowance in the final quarter of FY19. Consequently, the effective tax rate was 18% lower compared to 28% in FY18.

FY19 Ebitda margin rose 3ppt to 18% from 15% in FY18 from adoption of MFRS 16 and possibly on contributions from the new hospitals (previously under gestation) and incremental ramp-ups from new openings.

KPJ experienced 7% revenue growth in 2019 due to higher average inpatient volume, higher radiology cases and surgeries performed.

"KPJ Batu Pahat which opened on 18 September 2019 has started contributing to the Malaysia segment’s revenue alongside other newly-opened hospitals such as KPJ Perlis and KPJ Bandar Dato’ Onn," it said.

Ebitda rose 29% due to impact of MFRS 16 adoption since the Group does not recognised lease rental but instead recognised depreciation and finance costs derived from the right-of-use assets and lease liabilities, respectively.

"We raise FY20E net profit by 5% after taking into account the remaining balance unused portion of the investment tax allowance to lower the effective tax rate from 33% to 30%," said Kenanga.

The research house maintained its outperform recommendation on the stock with a higher target price of RM1.20 from RM1.15 previously.
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