AmInvestment Bank Bhd is maintaining its buy call on KPJ Healthcare with a lower fair value of 96 sen from the previous RM1.02, based on a P/E ratio of 23x for FY21F EPS.
KPJ’s net profits for the first half of the year ended June 30, 2020 (1H20) missed expectations with a decline of 41% year-on-year (y-o-y) to RM51.5 mil from the previous year’s RM87.2 mil.
However, AmInvestment Bank Bhd analyst Nafisah Azmi believes that Malaysia’s leading provider of private healthcare services is on the road to recovery as patient admissions improves compared to the movement control order (MCO) period.
“Following the recovery MCO (RMCO), KPJ has seen a recovery trend as more patients are seeking treatment. Patient admissions are improving up to 6% MoM in July 2020 while occupancy rate rose 49% (+10% MoM),” Nafisah said in an August 28 note.
Due to the MCO, KPJ’s 1H20 revenue recorded a lower amount to RM1.51 bil (12% decline), caused by lower patient admissions and occupancy rate.
“All elective procedures were postponed and only critical cases were catered to during the MCO,” Nafisah added.
This led to lower patient admissions (29%) and lower occupancy rate (33%), causing KPJ’s 2Q20 revenue to decline 27% to RM626.6 mil compared to RM860.2 mil in 2Q19.
Additionally, KPJ’s 2Q20 EBITDA fell to RM112 mil (26% decline y-o-y) in tandem with lower revenue as fixed costs remain high. The group also incurred Covid-19-related expenses for personal protective equipment for frontliners, Covid-19 test kits and other consumable items.
Despite that, the EBITDA margin was slightly better at around 18%, attributed to benefits received from the Prihatin Economic Stimulus Package and Penjana Economic Recovery Plan.
The average revenue per patient was also improving for both inpatient (+6% q-o-q) and outpatient (5% q-o-q) as a majority of the cases were more critical cases, but that might not last long.
“Looking ahead to 3Q20, we think that the average revenue per patient will be lower as the hospitals take on more elective cases and case mix normalises,” Nafisah said. “The group expects occupancy ratios to normalise to pre-Covid-19 levels of 70% by 4Q20, barring a worsening pandemic situation.”
However, AmInvestment believes a stronger recovery will come in FY21F, with its net margin to improve to 3.1% in FY20F, 4.7% in FY21F and 5% in FY22F.
“We forecast the net profit to grow by 69% y-o-y in FY21F and 15% y-o-y in FY22F, and the net margin to be 3.1% in FY20F,” she said. “We believe KPJ’s hospital capacity expansions will be the long-term growth driver for the group. We like KPJ for its long-term prospects in the private healthcare sector and vast network of hospitals in Malaysia.”
As of 5.58pm today, KPJ Healthcare’s share price stood at 82 sen with a market capitalisation of RM3.66 bil.
