KPJ expected to see recovery in occupancy

CGS CIMB expected total occupancy rates of about 52% for the financial year ending Dec 31,2020 (FY20), which is a slight dip from FY19’s occupancy rate of 67%.

PETALING JAYA: KPJ Healthcare Bhd is expected to see a recovery of 50% to 60% in occupancy rates at its Malaysian hospitals by the second half of the year, said CGS-CIMB.

The research house expected total occupancy rates of about 52% for the financial year ending Dec 31,2020 (FY20), which is a slight dip from FY19’s occupancy rate of 67%.

“With the easing of the movement control order (MCO) in Malaysia, we expect KPJ’s occupancy rates to gradually recover from its troughs in the second quarter of FY20 on pent-up demand.

“We also gather that network expansion work, including the relocation of hospitals that was halted during the MCO, resumed in early May. This is slated for completion in FY21, ” said CGS-CIMB.

Patient visitations and overall occupancy rates for KPJ’s Malaysian hospitals are expected to decline significantly in the second quarter of FY20 due to the implementation of the MCO since March 18,2020.

Patients shied away from hospitals and deferred non-chronic treatments on Covid-19 fears.

CGS-CIMB estimated that occupancy rates for KPJ’s Malaysian hospitals could have dropped to as low as 30% to 40%, as compared to the typical range of 60% to 70%.

In March 2020, KPJ’s revenue declined by 13% versus the average monthly revenue recorded in January to February 2020. Note that the first two weeks of the MCO occurred in March.

Apart from that, KPJ has recently announced the disposal of its 80% stake in PT Khidmat Perawatan Jasa Medika (KPJM), the operator of specialist hospital RS Medika Permata Hijau (RSMPH) in Jakarta Barat, Indonesia, for a total consideration of RM28mil at a valuation of two times price-to-net total assets.

The proposed disposal is part of the restructuring of KPJ hospital operations in Jakarta, which was necessitated by the difficulties KPJ faced in licensing and regulatory compliance imposed on foreign operators.

CGS-CIMB noted that KPJ still retained ownership of RSMPH while attaining local operator status to better comply with local regulations.

“We upgrade KPJ from ‘hold’ to ‘add’ after its recent share price weakness, which we find overdone despite its near-term challenges.

“At current valuations, KPJ is the cheapest hospital stock in our regional coverage universe, trading at a 2020 price-earnings (PE) multiple of 17.3 times versus the weighted regional average 2020 PE of 38.9 times, ” said CGS-CIMB.

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