KPJ Healthcare Berhad

KPJ earnings set to rise on hospital ops expansion

KPJ Healthcare Bhd's earnings is expected to rise by a decent 10% to RM161mil in its financial year 2013

KPJ Healthcare Bhd's earnings is expected to rise by a decent 10% to RM161mil in its financial year 2013 and could potentially enjoy a 22% return as it aggressively expands its business locally and regionally.

The rise may not be so obvious as there is the long gestation period for new hospitals and high operating costs that KPJ has to bear with.

AmResearch, which recently visited the company, noted that KPJ has dominant position in the local healthcare industry and has attractive longterm growth potential in greenfield projects.

Analyst Tan Ee Zhio said following its stepup in bed capacities from a fleet of eight new hospitals for financial year 2013 to 2015 forecast, earnings momentum was estimated to accelerate by financial year 2012 to 2015 forecast three year compound
annual growth rate of 11%.

"We continue to like KPJ's dominant position in Malaysia and longterm growth potential via greenfield projects, acquisition and expansion of existing hospitals.

"Hence, we have an upside bias on the stock, underpinned by a potential return of 22%," he said in a report.

Tan added that at the current level, KPJ's fully diluted price to earnings (PE) ratio stood at 21 times of financial year 2013 forecast, within its historical five year PE band.

KPJ's forward valuation is also attractive compared with its regional peers' average PE of 23 times.

 "More importantly, (KPJ's PE is) at a huge discount of 76% to IHH
Healthcare's PE of 37 times. Thus, we view KPJ as a cheaper proxy to the growing healthcare industry sector," he said.

This year, the healthcare group targets 520 more beds in its business expansion and a further 840 beds over the medium term in its financial year 2015.

Tan said its additional beds for the year were underpinned by the group's existing four hospitals Sabah Specialist, Pasir Gudang Specialist, Maharani Specialist and
Sri Manjung Specialist. The research house has reinitiated a "buy" recommendation on the healthcare group.

"We continue to expect organic growth from existing hospitals. As it is, four existing hospitals are undergoing expansion, bringing additional circa 390 beds by financial year 2015 forecast."

In the medium term, KPJ will develop five new hospitals and is expected to provide 840 beds in financial year 2014 and 2015.

The new hospitals are Pahang Specialist Hospital, Perlis Specialist Hospital, Bandar Dato' Onn, Miri International Specialist Hospital and Klang Bayuemas Specialist Hospital.

On the regional podium, KPJ is actively looking at expanding via acquisition of existing hospitals in the Asean region.