PETALING JAYA: KPJ Healthcare Bhd is expected to post stronger earnings in the coming quarters given the group’s strong market position and rising demand in healthcare tourism to Malaysia.
The healthcare group’s newly released first quarter results for the financial year 2024 (1Q24) came in within most analysts’ expectations.
Kenanga Research said it considers the group’s 1Q24 core net profit of RM57.1mil as within expectations, adding: “KPJ typically reports stronger earnings in the second half of the year.”
On the group’s outlook, Kenanga Research expect KPJ’s patient throughput to grow at 9% in financial year 2024 (FY24) versus an estimated 7% in FY23, with a bed occupancy rate of 72% (67% in 2023) driven by improved revenue from the recovery in demand for elective surgeries.
“Thanks to high patient throughput, two of its new hospitals have turned earnings before interest, taxes, depreciation and amortisation-positive, while the other two only recorded small operating losses,” added the research house.
Kenanga Research also likes KPJ for being among the bright prospects in the private-healthcare sector in Malaysia, underpinned by rising affluence and an ageing population.
Furthermore, the low price elasticity of demand for healthcare services makes providers less vulnerable to high inflation, as they can pass on the higher cost. This as well as KPJ’s strong market position locally with a large network of 29 private hospitals means it is positioned to do well.
However, the research house has downgraded the stock to a “market perform” after the recent run-up in its share price, but kept its target price at RM1.95.
Meanwhile, RHB Research has maintained a “buy” call on KPJ with a target price of RM2.12.
“Our basis of premium valuation on KPJ is premised on the group’s solid turnaround story, which offers room for margin improvement from hospitals that are maturing, potential opportunity to be unlocked via expansion into the health-tourism segment and a strategic move in upscaling an existing hospital into a tertiary-care centre,” RHB Research noted.
This would also enable KPJ to tap into more complex and procedures, it added.
The key downside risks, however, are lower-than-expected patient visits/revenue growth and higher-than-expected operating costs.
Going forward, Hong Leong Investment Bank Research (HLIB Research) expects KPJ to continue to deliver organic growth.
“After completing a series of greenfield expansion pre-Covid, KPJ is now shifting its focus to optimising existing hospital capacity and will be prioritising brownfield projects over greenfield, which have a longer gestation period.”
In the near term, HLIB Research noted KPJ aims to add 368 beds (9.9%), bringing its total to 4,101 beds.
The additional capacity will support KPJ’s organic growth in the near term, added the research house.
Furthermore, KPJ is looking to expand its market share in Malaysia’s healthcare-tourism sector, which is expected to see considerable growth over the next few years.
HLIB Research also reduced its FY24-FY25 core profit after tax and minority interests forecasts by 3.7% and 2.6%, respectively.
HLIB Research, which maintained a “hold” call on the stock, said: “We marginally raised the target price to RM1.82 despite the earnings cut, as we rolled our valuation base year to FY25 from FY24.”