KPJ’s FY22 results beat expectations on stronger-than-expected business rebound as the pandemic ended.
For FY23, Kenanga projected its patient throughput to grow 14% (vs. 12% in FY22) and bed occupancy rate (BOR) of 66% (vs. 58% in FY22) as the private healthcare services market resumes its growth path post the pandemic. Kenanga raises their FY23F net profit by 10%, and lift their TP by 13% to RM1.32 (from RM1.16) while reiterating their OUTPERFORM call.
FY22 net profit more than tripled to RM172m, beating Kenanga’s forecast and the consensus estimates by 9% and 19%, respectively. The variance against Kenanga’s forecast came largely from a stronger-than-expected rebound in inpatient throughput.
YoY, FY22 revenue rose 13%, thanks to higher patient throughput (+10%) and higher BOR of 58% (compared to 43% in FY21) as demand for non-COVID-related services rebounded including elective surgeries following the transition to an endemic phase.
Specifically, its Malaysia operation (which anchors >96% of earnings) registered a higher BOR of 58% against 43% in FY21 as surgeries rose 12%.
Better overhead absorption (on an improved turnover) drove a 34% improvement in EBITDA which Kenanga believes were also boosted by narrowing losses from its new hospitals (which are EBITDA positive), i.e. KPJ Bandar Dato’ Onn, KPJ Perlis and KPJ Miri.
As a result, FY22 net profit more than doubled, albeit from a low base a year ago. QoQ, 4QFY22 revenue fell marginally by 4% due to lower throughput from inpatient (-3%), outpatient (-7%) and slightly lower bed occupancy rate (BOR) of 64% compared to 66% in 3QFY22.
However, 4QFY22 net profit rose 33% to RM72m due to a lower effective tax rate of 16% (recognition of tax credits arising from the investment tax allowances) compared to 35% in 3QFY22. A 5th interim dividend of 0.6 sen was declared bringing FY22 DPS to 2.6 sen which came in above their expectations, according to Kenanga.
Outlook
Looking ahead into FY23, Kenanga projects KPJ’s patient throughput to grow 14% (vs. 12% in FY22) and BOR of 66% (vs. 58% in FY22) as the demand for private healthcare services resumes its growth path post the pandemic.
Forecasts
Kenanga raises their FY23F net profit by 10% (as they raise their assumption on patient throughput from 12% to 14%). They also introduce their FY24F numbers.
Kenanga continues to like KPJ for:
(i) the low “price elasticity of demand” for healthcare service, which means players are less vulnerable to high inflation as they could pass on the higher cost,
(ii) it being a reopening play, especially for elective surgeries, and
(iii) its strong market position locally with the largest network of 29 private hospitals (vs. only 16 of IHH Healthcare’s Malaysia operation in the second place).
Kenanga rolls over their valuation base from FY23F to FY24F. Correspondingly, Kenanga’s TP is raised by 13% to RM1.32 (from RM1.16) based on PER of 27x FY24F EPS, at a 10% discount to the average of its regional peers to reflect KPJ’s smaller market capitalisation. There is no adjustment to Kenanga’s TP based on ESG given a 3-star rating as appraised by them.
Key risks to their call are: (i) regulatory risk, (ii) the lack of political will to roll out a national health insurance scheme, and (iii) longer-than-expected gestation periods for its newer hospitals.
