KPJ’s 2Q22 core PATAMI of RM27.1m (+16% QoQ, +4-fold YoY), brought 1H22 core PATAMI to a sum of RM49.3m (+147% YoY). The results formed 44% and 39% of our and consensus FY22 estimates, but we still deem the results in line, as we are anticipating sequentially stronger results in 2H22, supported by the recovery of patient footfall. We make no change to our earnings forecasts, and we maintain our BUY call on KPJ with an unchanged SOP-derived TP of RM1.13.

Deemed in line. KPJ’s 2Q22 core PATAMI of RM27.1m (+16% QoQ, +4-fold YoY), brought 1H22 core PATAMI to a sum of RM49.3m (+147% YoY). The results formed 44% and 39% of our and consensus FY22 estimates, but we still deem the results in line, as we are anticipating sequentially stronger results in 2H22, supported by the recovery of patient footfall. 1H22 core PATAMI was arrived at after adding back EIs (mainly impairment charge on trade receivables) amounting to RM1.3m.

Dividend. Declared interim dividend of 0.55 sen, goes ex on 29 Sept 2022. (2Q21: none declared). 1H22: 1 sen (1H21: none declared).

QoQ. Revenue was up by 9%, on the back of overall increase in business activities – inpatient numbers grew by 14% while number of surgeries performed increased by 8%. Apart from the return of local patients, we believe the improvement in patient numbers was also partially contributed by the return of foreign patients, as the international borders in Malaysia reopened on 1 Apr. Core PATAMI grew by a stronger magnitude of 16%, as share of results from its associates recorded a 59% jump.

YoY. Revenue delivered a 12% growth, owing 6% improvement in patient numbers. We believe this was supported by the return of both local and foreign patients, as local patients return to seek elective treatments while foreign patients were allowed to return to Malaysia following the reopening of borders. With better operational efficiency arising from higher bed occupancy rate of 51% (vs 41% in 2Q21), c ore PATAMI reported a much stronger growth of 4x.

YTD. In tandem with the 10% growth in patient volume, KPJ’s revenue also reported a 10% increase in 1H22. Bed occupancy improved to 51% (vs 40% in 1H21) as patient return to seek elective treatment post-pandemic. Overall improvement in operational efficiency also lifted core PATAMI by 147%.

Outlook. We expect KPJ to continue recording sequentially stronger performance in the coming quarters, as we expect patient footfall and bed occupancy rate to continue recovering, underpinned by the return on both local and foreign patients. We gather that KPJ has set a modest foreign patient revenue target of RM120m for FY22 (vs RM150m achieved during the peak in FY19) and has achieved RM50m in a mere three months since borders reopened. Not to mention that the occupancy rate has also recovered close to pre-pandemic levels of c.65% at end-June. Disposals of its non-core assets are also underway – divestment of its Indonesian operations is currently in due diligence stage with several bidders, while the disposal of Jeta Gardens is expected to take longer to conclude, given the regulatory requirements.

Forecast. Remain Unchanged.

Maintain BUY, TP: RM1.13. Maintain BUY on KPJ with an unchanged SOP-derived TP of RM1.13 as we expect KPJ to continue reporting stronger performance in the coming quarters, underpinned by stronger patient footfall and better bed occupancy rate.

Source: Hong Leong Investment Bank Research - 30 Aug 2022