KUALA LUMPUR: CIMB Equities Research is maintaining its Reduce recommendation for hospital operator KPJ Healthcare and cut its target price from RM3.77 to RM3.19.
It said on Thursday that KPJ’s valuation was vulnerable to a rise in interest rates and market risk premium, even though it is a low dividend-yielding stock.
“This is because a large portion of KPJ's value is derived from cashflows made far into the future. As such, its valuation is sensitive to changes in the discount rate,” it said.
CIMB Research cut its target price as it raised its cost of equity assumption to 9.0% from 8.3% to reflect its higher risk-free rate and market risk premium estimates.
“KPJ remains a Reduce due to its rich valuations. KPJ's removal from FBM Hijrah Shariah also means that investors now have one less reason to own the stock. Potential de-rating catalysts are weak near-term earnings due to start-up losses at its new hospitals.
“We prefer Hovid for exposure to the Malaysian healthcare sector,” said the research house.