Kenanga Research anticipates a solid fourth quarter FY23 performance from KPJ.
PETALING JAYA: KPJ Healthcare Bhd
’s improvements in operational efficiency and cost optimisation will support its performance as it continues to improve its patient throughput, paving the road for larger numbers in the future, says Kenanga Research.
The research house said it expects the specialty hospital to see an increase in patient throughput of 9% in financial year 2024 (FY24) and a rise in bed occupancy rate to 71% compared to an estimate of 7% and 68% in FY23, respectively.
The forecast was made on the back of revenue growth resulting from the recovery in demand for elective surgeries.
Kenanga Research anticipates a solid fourth quarter (4Q) performance in FY23 from KPJ, as no signs of patient throughput slowing down at the hospital were seen despite the tapering off of pent-up demand for elective surgeries post-pandemic.
Lower effective tax rates may also help the group’s performance for the quarter, as Kenanga Research pointed out that KPJ usually uses the tax benefits from underutilised capital allowances and tax losses for newly established companies during gestation and recognition of tax allowances in 4Q.
This brings the research house to forecast KPJ’s net profit to come in at RM75mil, an 11% quarterly hike, taking its FY23 core net profit to a higher level of RM239mil.
“Coupled with 4Q typically being KPJ’s strongest quarter, our FY23 net profit forecast before the upgrade of RM228mil appears to be conservative,” Kenanga Research stated.
As for bottom-line profitability, the research house anticipates stronger operational efficiency from its cost optimisation effort and overhead absorption rate as a result of a gradual ramp-up in opening new beds to propel its earnings into FY24.
Having gained incremental revenue from the higher patients throughout, two of the group’s facilities under gestation have become earnings before interest, taxes, depreciation and amortisation (ebitda) positive, while three hospitals – Miri, Perlis and Damansara Specialist Hospital 2 (DSH 2) – remain in the red.
However, KPJ expects the three hospitals to break even by the end of 2024 as revenues gain momentum. In the long run, the group hopes to achieve an ebitda margin of 28%, as opposed to the 23% predicted by Kenanga Research for FY23 and FY24.
“We believe management is focused and committed towards bottom line profitability following the divestment of its loss-making Indonesian operations and Jeta Garden, which caters to aged care and retirement village business in Australia,” Kenanga Research added.
On a separate note, KPJ’s DSH2 aims to achieve 30% to 50% medical tourism in FY24 and FY25 by providing cardiac services and bringing in patients from the Middle East in partnership with specialists.
This raises the group’s goals for medical tourism income to RM300mil to RM400mil in FY24, or 9% to 12% of Kenanga Research’s FY24 revenue estimate as opposed to the previous range of 2% to 4%. It raised its FY23 and FY24 net profit forecasts by 5% each as it lifted its patient throughput assumption to 7% and 9%.
Kenanga Research reiterated an “outperform” call on KPJ with an upgraded target price of RM1.86 per share on a valuation of 28 times FY25 earnings per share.
The research house said it continues to favour KPJ for its strong market position locally with the largest network of 29 private hospitals, low “price elasticity of demand” for healthcare services and the sector’s promising future in Malaysia due to growing affluence and an ageing population.
