KPJ Healthcare Berhad

KPJ remains a defensive play with long term growth prospects

KPJ remains a defensive play with long-term growth prospects

KPJ remains a defensive play with long-term growth prospects

KUCHING: KPJ Healthcare Bhd (KPJ) forecasts an earnings per share growth of between eight per cent and 15 per cent per annum over the next three years, driven mainly by the expected increase in hospital beds.

The total bed capacity is estimated to reach 3,100 by the end of the year mainly contributed by Bandar Baru Klang Specialist Hospital, new hospitals in Muar and Pasir Gudang and the replacements in the Sabah Medical Centre.

"We like KPJ for the defensive nature of its hospital business," said Maybank Investment Bank Bhd (Maybank IB). It currently owns the largest network with 20 private hospitals and more than 2,600 beds, accounting for almost 20 per cent of private hospital beds in the country.

KPJ aimed to grow further by adding one or two new hospitals each year and already has eight announced expansion plans in the pipeline. It was also eyeing a bigger share of the medical tourism pie, striving to grow revenue contribution from less than 10 per cent to between 15 per cent and 25 per cent in three to four years.

Maybank IB pointed out that the underlying demand was supported by structural factors such as higher population growth, increasing proportion of the aged and rising income levels.

"Strained public healthcare provides opportunities for the private sector to play a bigger role. The government has also identified the healthcare sector as one of the 12 key pillars of its Economic Transformation Programme," it added.

On the other hand, KPJ maintained an asset-light structure by selling its hospital assets to Al-'Aqar REIT (Real Estate Investment Trust) and leasing them back for its operations. Proceeds from the disposals could provide cash for further investments and expansion of its hospital network without putting a strain on its balance sheet.

While moving forward, KPJ could face competition from the Parkway-Pantai group and many other smaller private healthcare players in the domestic market.

Liberalisation of the healthcare sector could also bring in foreign competition.

The research firm said the group would also face challenges from a shortage of healthcare professionals.

"As KPJ pursues its expansion plans, we believe that any delays or cost overruns in executing its plans could restrict its expected growth," it added.

Maybank IB pegged a target price for KPJ at RM5.10 per share based on 22 times FY12F price earnings ratio. KPJ offered the highest dividend yields among regional
hospital peers and an appealling long-term riskreturn proposition.