CIMB Research keeps Reduce call on KPJ Healthcare

KUALA LUMPUR: CIMB Equities Research is maintaining its Reduce call on KPJ Healthcare with a target price of RM3.12.

It said on Thursday KPJ will stick to its plan of opening two new hospitals annually, even though this could result in large start-up losses.

“We concur with management that its future expansion in Malaysia could be constrained by the government's zoning policy if it delays its expansion plans. However, start-up losses are likely to drag its near-term profits lower.

“Coupled with its rich valuations against regional peers, we maintain our Reduce rating and SOP-based target price,” it said.

CIMB Research said the near-term earnings weakness and potentially longer-than-expected gestation for its new hospitals could be de-rating catalysts, it pointed out. It preferred IHH for exposure to the healthcare sector.

“Although KPJ's share price has shed 16% YTD, its valuations remain rich, in our view, at 32 times CY15 price-to-earnings or a 34% premium over other Asean hospital operators under our coverage. We would turn more positive on KPJ if its new hospitals turn profitable earlier than expected,” said the research house.
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