KPJ expects its earnings momentum to accelerate during 2HCY23, underpinned by pent-up demand for elective surgeries. Thanks to high patient throughput, two of its new hospitals have turned EBITDA-positive while the other three only recorded small operating losses.
The group explained that the sequential weakness in 2QFY23 was due to fewer patients seeking treatment during the festive month. Recall, QoQ, its 2QFY23 topline fell 4% due to lower throughput from inpatient and outpatient as BOR tapered off to 63% compared to 70% in 1QFY23. Correspondingly, its 2QFY23 net profit fell 10% to RM47m. Kenanga highlights that historically (i.e. for past three years pre-COVID, 2H accounted for an average of between 53%-62% of full-year earnings). To recap, key operating indicators showed marked improvement in 1HFY23. YoY, 1HFY23 earnings were driven by higher patient throughput and higher BOR of 66% as demand for non-COVID-related services rebounded including elective surgery cases following the transition to the endemic phase.
The group expects earnings to gain momentum in the second half on better operational efficiencies from its cost optimisation effort and overhead absorption rate as a result of the gradual up in opening new beds. Hence, having gained incremental revenue underpinned by higher patient throughput, the group’s two hospitals under gestation turned EBITDA-positive. Only three hospitals namely Miri, Perlis, and DSH2 recorded losses of RM18m at EBITDA level. The group expects Miri and Perlis to be EBITDA-breakeven by end 2023 as revenue is gaining momentum.
Its Damansara Specialist Hospital 2 posted 1HFY23 losses of RM46m or 2QFY23 losses of RM24m vs 1QFY23 of RM22m. In 2QFY23, BOR averaged 41% compared to 34% in 1QFY23 on gradual ramp-up in activities. The group aims to increase bed capacity from 60-123 beds in 2023 to 205-265 beds in 2025. Initially, DSH2 is targeting 30% medical tourism portion in FY23 (thereafter 50% in 2025) by offering cardiac services through collaboration with consultants to bring in patients from the Middle East. KPJ’s 1HFY23 medical tourism revenue rose 50% to RM100m and is targeted to reach RM200m in FY23 where almost 50% of the patients are from Indonesia. Thereafter, it is targeting to achieve RM400m in FY24 which accounts for 12% of our FY24F revenue vs the historical 2%- 4%.
The house projects KPJ’s patient throughput to grow 14% in FY23, and BOR of 70% as the demand for private healthcare services resumes its growth path post the pandemic.
