UOBKH Research highlighted that KPJ’s exponential medium-term growth will depend not only on its aggressive capacity expansion, but also on its holistic five-year transformation plan.
PETALING JAYA: KPJ Healthcare Bhd
expects to see two of its five loss-making hospitals return to profitability by the end of this year, as the group continues its efforts to address operational challenges within its network.
In 2023, KPJ experienced a cumulative loss after tax of RM137mil across five hospitals: Damansara Specialist Hospital 2 (DSH2), Perlis, Miri, Batu Pahat and Bandar Dato’ Onn.
UOB Kay Hian (UOBKH) Research noted that with the exception of Miri, the other four hospitals have already broken even operationally.
“Of these, two are projected to achieve bottom-line profitability by year-end,” it added.
However, Miri’s gestation has been slower than anticipated due to difficulties in attracting a sufficient number of consultants, the research firm noted.
In addition to resolving operational issues, UOBKH Research said KPJ is advancing its expansion efforts with the opening of a new greenfield hospital in Kuala Selangor.
“Despite its brownfield focus, KPJ’s 30th hospital will be a greenfield 60-bed hospital in Kuala Selangor,” it said.
The group is targeting a faster gestation period for this hospital, aiming to break even operationally in less than the typical three years.
The affluent catchment area is expected to attract a higher proportion of cash-paying patients.
UOBKH Research highlighted KPJ’s plans to have all 15 consultants recruited by the hospital’s launch in the first quarter of 2025, rather than the usual staggered hiring process.
“Similar to DSH2, the hospital could be onboarded to key insurance panels in record time.”
These initiatives are intended to accelerate the hospital’s gestation, it added.
Looking ahead, UOBKH Research highlighted that KPJ’s exponential medium-term growth will depend not only on its aggressive capacity expansion – targeting up to 5,000 beds by 2028 from the current 3,733 – but also on its holistic five-year transformation plan.
“A key concept is ‘one patient, one record’, consolidating all medical information for a single patient into one comprehensive record that is accessible across its network of hospitals.
“This is further enhanced by its mobile app,” the research house noted.
Additionally, UOBKH Research pointed out that other strategic pillars for KPJ include branding and culture activation, with the goal to establish centres of excellence and foster a high-performance organisation through individual empowerment and execution.
The brokerage said KPJ has effectively addressed asset optimisation through hospital gestation and asset divestment in recent years.
Following robust growth in health tourism last year, it said KPJ is now focusing on expanding into secondary, high-potential markets.
These markets include Bangladesh, India, the Middle East and North Africa, and China, which could prove lucrative in the medium term.
On the medical tourism front, UOBKH Research noted that KPJ is on track to capture a larger share of the market, with its medical tourism revenue growing by 20% year-on-year (y-o-y) in the first half of 2024.
This aligns with the Malaysia Healthcare Travel Council’s target of achieving a 20% y-o-y growth or RM2.4bil in medical tourism revenue for 2024, compared to RM1.7bil in 2019.
“The reestablishment of its representative offices in Indonesia and the building of a network of agents are expected to be the key drivers for KPJ to meet its near-term medical tourism aspirations,” the research house said.
UOBKH Research maintains its “hold” call on KPJ, with a target price of RM1.90 a share.
“We believe its current valuations have largely priced in its restructuring efforts, anticipated recovery and its shift away from its past greenfield expansion strategy.”
