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KPJ Healthcare Is Set To Post Positive Year-On-Year Earnings Growth, Says RHB Research

KUALA LUMPUR: RHB Research expect KPJ Healthcare Bhd to continue posting positive year-on-year (YoY) earnings growth, underpinned by robust patient traffic growth, improving operating efficiency of hospitals under gestation, and pick-up in foreign patient visits.

KPJ Healthcare Bhd is set to see earnings growth based on its strategic upscaling initiatives, improvements in operating efficiency from hospitals under gestation and pick-up in healthcare tourism.

“Notwithstanding the above, we gather that the company is set to see a better patient-case mix in the first quarter (Q1) 2024 – this could potentially lift revenue intensity higher, in our view,” the bank-backed research firm said in a recent note.

The research firm said additionally, the health ministry’s latest move to exempt the post-basic qualification exemption for foreign nurses to work here from October 2023 till September 2024 could potentially address the country’s nursing shortage issue.

“We believe a private hospital player like KPJ Healthcare could capitalise on such opportunities to meet its nursing requirements,” RHB Research noted.

In addition, RHB Research opined that visa-free entry for foreign tourists, particularly from China and India, is set to have a positive spillover effect on the healthcare tourism (HT) sector here, as the two nations contributed 5 per cent and 3 per cent to Malaysia’s HT revenue, respectively.

KPJ Healthcare’s key emphasis in prioritising the strengthening of its presence in Indonesia by setting up representative offices and recruiting agents that can help lead Indonesian patients along their HT route.

KPJ Healthcare has set an ambitious RHB Research noted that the target is to achieve 18-20 per cent market share by 2024-2025 from the current 6 per cent.

On earnings, RHB Research expect Q1 FY24 net profit to come within an RM67-RM72 million range, representing 26-36 per cent
YoY growth, predicated on strategic upscaling initiatives in driving the growth of revenue intensity, improvements in operating efficiency from hospitals under gestation, and pick-up in HT.

Based on its channel checks, the research firm also noted that five hospitals under gestation are set to post narrower earnings before interest, taxes, depreciation, and amortization (EBITDA) losses in Q1 FY24, underpinned by gradual improvements in operating efficiency.

Notably, Damansara Specialist Hospital 2’s (DSH2) bed occupancy rate in January 2024 was guided to increase to 50 per cent on top of healthy growth in average monthly revenue.

Note that DSH2 recently boosted its operating beds to 100. It looks to add 30-50 beds by the end of 2024.

“We keep our earnings estimates unchanged but lower our required returns assumption to 9.2 per cent from 9.6 per cent.

“Maintain Buy with a higher target price of RM2.12 as we think KPJ Healthcare’s domestic-centric focus should offer it a valuation premium over IHH Healthcare Bhd in the near term.

“Key downside risks are lower-than-expected patient visits and higher-than-expected operating costs,” RHB Research said.

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