KPJ’s long-term prospects remain positive

Analysts expect a gradual recovery in KPJ’s bed-occupancy rates and patient visitations in light of the ongoing Covid-19 outbreak concerns.

PETALING JAYA: The movement restriction that started in mid-October due to the fresh wave of Covid-19 cases could impact KPJ Healthcare Bhd’s earnings in the fourth quarter of this year (Q4).

Analysts expect a gradual recovery in KPJ’s bed-occupancy rates and patient visitations in light of the ongoing Covid-19 outbreak concerns.

“While we expect Q4 to be seasonally stronger, the recent reinstatement of the conditional movement control order (CMCO) due to the recent spike in Covid-19 cases in a number of key Malaysian states could hamper the recovery in patient visitations and bed-occupancy rates.

“We remain positive on KPJ’s long-term prospects due to the steady domestic healthcare demand growth, even with the near-term uncertainties from the Covid-19 outbreak, ” CGS-CIMB Research said in a report yesterday.

Nonetheless, despite reporting earnings below consensus estimates for its Q3 results, analysts are mainly bullish on the hospital operator’s long-term prospect to remain steady and expect a gradual recovery.

For its Q3 ended Sept 30, KPJ posted a 27% decline in net profit to RM33.99mil from RM46.41mil a year earlier, as patients opted to postpone non-urgent and non-essential treatment and deferred visits to hospitals and healthcare facilities.

Cumulatively, KPJ reported a nine-month net profit of RM85.2mil for financial year 2020 (FY20), declining 33.1% from a year ago.

Public Investment Research (PublicInvest) said that KPJ’s results came in below both its estimate of 65% and the consensus estimate of 60%. As such, the research house has cut its earnings forecast for KPJ’s FY20 by 6% to impute a higher cost assumption, while FY21 and FY22 earnings forecasts remain unchanged.

It pointed out that between July and September, KPJ’s bed-occupancy rate declined to 51% compared to an average occupancy rate of 73% in the same period last year.

Additionally, some of KPJ’s hospitals are still under the gestation period, namely, KPJ Bandar Dato Onn, KPJ Batu Pahat, KPJ Perlis and KPJ Miri, that also contributed to the margin compression for the group, PublicInvest said.

AmResearch said that these four hospitals were loss-making and that KPJ is targeting breakeven in the next three to four years.

It said that KPJ only had one new hospital in the pipeline, KPJ Damansara II Specialist Hospital, set to open in the first quarter of 2022.

“In terms of expansion, KPJ has reached the closing stage of its more aggressive current expansion phase, with the focus now on upgrading and refurbishing older hospitals.

“Maintenance capital expenditure (capex) is now expected to take up two-thirds of its total capex budget, with the remainder allocated for expansion, ” AmResearch said.

On KPJ’s overseas business, AmResearch said that the group is planning a potential restructuring of its Australian and Indonesian operations.

“Australian services have been seeing a poor performance recently, following a trend towards home care, as well as heightened pandemic costs, ” it added.

KPJ is a private healthcare group managing 20 hospitals nationwide and two in Indonesia.

PublicInvest pointed out that since the relaxation of movement restrictions in June, inpatient footfall and bed-occupancy rates have continued to gradually improve, although the operational metrics have yet to return to pre-Covid 19 levels and the rate of recovery being much less steeper than when the movement control was first eased in Q2.

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