- Stay BUY and MYR1.20 TP (DCF), 13% upside. 2022 results were 19% and 17% above our and Street’s estimates, attributed to the YoY increase in patient visits, improved bed occupancy rate (BOR), and stringent cost management practices. Our TP incorporates 0% ESG premium/discount and represents 28x 2023F PE, 0.4SD below KPJ Healthcare’s historical mean average of 33x – this on the back of a robust earnings growth outlook of 32% for 2023.
- Results overview. 4Q22 core profit more than doubled to MYR65m, bringing 2022 core earnings to MYR165m, ie 19% and 17% above our and Street’s estimates. Across the three key market segments that KPJ has a presence in, Malaysia, Indonesia, and Australia saw 15%, 18%, and 8% YoY growth during 4Q22. The Indonesia segment was re-classified as discontinued operations during the quarter, as KPJ expects the divestment to be finalised within the next 12 months. Net loss from the Indonesia segment was MYR10.3m, representing 16% of its PATAMI from continuing operations during 4Q22.
- Operating metrics and margins performance. KPJ’s total outpatient and inpatient visits booked 1% and 18% YoY growth to 737,232 and 83,502 during 4Q22. Notably, patient visits during this period surpassed pre- pandemic levels, driven by a higher number of surgeries carried out as the group’s inpatient visit growth outpaced outpatient visit growth. BOR improved 18ppts YoY to 64% in 4Q22, helped by a 16ppts YoY pick-up in Malaysia operations to 63%. Australia’s LBITDA narrowed QoQ and YoY to MYR0.4m – likely attributed to improved operating efficiencies, ie higher BOR. Malaysia EBITDA margin leaped 5.3ppts YoY to 26% as KPJ streamlined cost management practices, ie centralised procurement for medicines and consumables.
- Earnings revisions. We leave our earnings estimates unchanged pending today’s post-results briefing.
- Valuation. Maintain BUY with an unchanged DCF-based TP of MYR1.20. The stock currently trades at 25x against our 2023F EPS, which is 0.8SD below its historical average of 33x. We incorporate a 0% ESG premium/discount to our intrinsic value as KPJ’s ESG score is in line with the country median. We still like the group for its ample growth opportunities, anchored by its gradual expansion into the health tourism segment, benefiting from the return of foreign patient visits post border reopenings, and potential earnings accretion should the disposal of its overseas entities crystallise.
- Key downside risks: Lower-than-expected patient visits/revenue intensity growth and higher-than-expected operating costs.
Source: RHB Research - 20 Feb 2023