KPJ Healthcare Berhad

All signs point to robust FY11 numbers for KPJ Healthcare

KPJ Healthcare Bhd is due to release its FY11 results on Feb 28, which we expect to come in within our and consensus estimates. We keep our forecast hut are incorporating KPJ’s enlarged share base

Recommendation: Buy TARGET Price: RM5.84 by OSK Investment Bank Bhd (Feb 9)

KPJ Healthcare Bhd is due to release its FY11 results on Feb 28, which we expect to come in within our and consensus estimates. We keep our forecast hut are incorporating KPJ’s enlarged share base of 594.3m versus 566.3m previously, owing to the exercise of some of its warrants.

This accordingly dilutes our FY11 and FY12 EPS by 4.9%.

Maintain Buy’ with Higher FV

In line with the upward rerating of the regional sectors PER, we are raising KPJ’s PER multiple from 19.6x to 23.1x on FY12 EPS, based on a market cap weighted average regional sector PER. We maintain our 'Buy' call, but at a higher FV of RM5.84 versus RM5.21 (19.6x FY12 EPS) previously.

With Integrated Healthcare Holdings Sdn Bhd’s upcoming listing possibly sparking an upward sector rerating, we hold firm to our view that KPJ is an excellent long-term investment for portfolio balancing with immense growth potential in a defensive sector.

Preview of Performance

We expect KPJ to sustain strong topline growth of about 13%-15% YoY. However, due to slower yield growth at new hospitals such as Tawakkal Specialist, Penang Specialist and Bumi Serpong Damai (BSD) in Jakarta, group PBT growth may come in at a more moderate 8%-1O% YoY.

That said, following an increase in capacity, yields started to improve at Penang Specialist while Tawakkal Specialist has started to show moderate yield improvement.

As BSD is still in its gestation phase, it is expected to remain in the red but should perform over time as it develops a stronger patient base.

Expansion on Track

Bandar Baru Klang Specialist hospital, for which construction was completed late last year, is expected to start operating in March, pending further regulatory approvals.

Four of KPJ’s new hospitals are currently under construction while work on another three is expected to start this year.

Other than greenfield projects, KPJ is still on the lookout for potential acquisitions locally and abroad as part of its expansion strategy.

Its goal of reaching RM2b revenue for 2012 is highly achievable in view of the increase in patient capacity and higher facilities utilisation.