KPJ Healthcare Berhad

KPJ net profit forecast gets trimmed but still on growth path

KPJ Healthcare Bhd is due to release its 9MFY11 results on Nov 29, 2011. For 9MFY11, it is expected to sustain topline growth at around 13%-15% YoY.

Slower Yield Growth

KPJ Healthcare Bhd is due to release its 9MFY11 results on Nov 29, 2011. For 9MFY11, it is expected to sustain topline growth at around 13%-15% YoY.

However, in the face of higher operating costs and slower yield growth at its new hospitals, PBT YoY growth is expected to slow down. Based on management guidance, we are raising our revenue forecast for FY11 by 2.2% but trimming our net profit forecast by a marginal 1.2% on incorporating a lower operating margin. Our FY12 forecast remains unchanged.

We maintain our 'Buy' rating at an unchanged FV of RM5.21, based on 19.6x PER on FY12 EPS, pegged to the regional peer average.

Slower PBT growth seen.

Despite the strong topline growth, KPJ expects a slight slowdown in PBT growth largely due to slower yield growth at its new hospitals, namely Tawakkal Specialist, Penang Specialist and Bumi Serpong Damai (BSD) in Jakarta.

Generally KPJ’s new hospitals do not operate at full capacity at the start of operation as the group reserves some floors for future expansion.

Given the high fixed costs nature of the business and in order to improve yields, both hospitals have embarked on capacity expansion by opening new wards to reach optimum operating capacity.

Meanwhile, BSD is expected to remain in the red for at least a few more years as it is still in the early phase of gestation.

Nevertheless, KPJ expects BSD’s financial performance to improve as it captures a bigger market share in Jakarta.

Still on the growth path.

With construction of Bandar Baru Klang Specialist hospital completed recently, the hospital is expected to start operation by 1QFY12 pending further approvals from the authorities.

Ongoing Expansion

KPJ has four new hospitals under construction currently while construction on another three is expected to start next year. The group’s ongoing expansion will enable it to strengthen its position as the leading private healthcare services provider in Malaysia as well as tap the underserved markets where private healthcare is in high demand. We believe that the innovative use of the REIT as a vehicle to recycle its capital will allow KPJ to sustain its growth momentum without stretching its balance sheet.

Maintain Buy’. Based on management’s guidance, we are raising our revenue forecast for FY11 by 2.2%.