BIMB Securities Research said KPJ Healthcare’s 4Q24 earnings could be equally good or better.
PETALING JAYA: KPJ Healthcare Bhd
, which reported its highest ever revenue in the third quarter of its current financial year (3Q24), at RM1bil, will continue to see robust patient traffic and a better patient-case mix.
BIMB Securities Research said in a report KPJ Healthcare’s 4Q24 earnings could be equally good or better.
The research house said the healthcare provider expects higher patient traffic for check-ups and other medical procedures because patients tend to delay such matters until later in the year to utilise their annual insurance benefits before expiry.
For financial year 2025 (FY25), the research firm raised its earnings forecast for KPJ by 8% and for FY26 by 10% to reflect the higher patient throughput and better revenue contributions from five new hospitals that are still maturing.
“We remain optimistic about KPJ, driven by its strong focus on organic expansion.
“However, we believe the stock’s potential for further upside is limited, as the market has already priced in these expectations, with KPJ’s share price rising 82% year-on-year (y-o-y),” BIMB Securities Research said in a report yesterday.
The research house maintained a “hold” call on the stock with a RM2.11 target price, which is lower than the RM2.41 it was trading at at yesterday.
In 3Q24, KPJ’s core profit surged 29% y-o-y to RM86mil, driven by improved operating efficiency, with its newer hospitals booking narrower losses from the previous quarter. Nine-month profitability came in at RM211mil.
An interim dividend per share of 1.15 sen was declared versus 0.8 sen in 3Q23 – representing a dividend payout ratio of 58% compared with 38% in 3Q23.
Meanwhile, RHB Research said that while the stock’s valuation might seem steep it was deemed “fair” considering a permanent, structural shift affecting the sector being driven by an ageing population.
There had also been growing investor appetite for high-quality healthcare assets. This was based on two recent mergers and acquisitions in the space, which were transacted at 20 times enterprise value over earnings before interest, taxes, depreciation and amortisation (EV/Ebitda).
RHB Research, which maintained a “buy” call on KPJ, upped the stock’s target price to RM3 from RM2.13.
“Our new target price implies 19 times 2025 EV/Ebitda, against its five-year historical average of 12 times.
“KPJ’s valuation deserves a premium due to its solid turnaround story with room for margins to widen from hospitals maturing,” said the research house.
It added there could be a valuation re-rating for healthcare players in tandem with Sunway Healthcare Group’s possible listing in the medium term.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research), which upgraded its rating to a “buy” from hold noted that the hospital chain is shifting its focus to optimise existing hospital capacity after completing a series of greenfield expansions pre-Covid.
“In 2024, KPJ aims to add 368 beds, bringing its total to 4,101 beds.
“Going forward, KPJ is targeting to hit 5,000 beds by 2028. These initiatives will support KPJ’s organic growth until 2028.”
HLIB Research forecasts 21% y-o-y growth in core profit after tax and minority interests for KPJ driven primarily by a 7.5% increase in revenue and further expansion in gross profit margin going into FY25.
This would be supported by the centralisation of procurement for inventories and consumables, the gradual development of its Centres of Excellence as well as the continued turnaround of KPJ Bandar Dato’ Onn, KPJ Perlis, KPJ Miri, KPJ Batu Pahat, and Damansara Specialist Hospital 2.
