• 3Q23 core PATMI of RM74.0m beat expectations, bringing 9M23 core PATMI to RM172.8m, 84.7%/77.7% of our/Bloomberg consensus’ FY23F estimates.

• KPJ declared 0.25 sen of special dividend, likely arising from a gain of RM41.5m recognised from its disposal of PTABSD and KPJM in Indonesia.

• Reiterate Add with an unchanged TP of RM1.50 as we await more clarity from its analyst briefing held on the morning of 29 Nov 23.

Core Operations Benefitted From Margin Expansion

• KPJ’s revenue grew by 15.9% yoy to RM925.4m in 3Q23, bringing 9M23 revenue to RM2.55bn, ahead at 78.0%/78.2% of our/Bloomberg FY23F consensus.

• However, 3Q23 core PATMI grew 46.0% yoy to RM74.0m, driven by higher bed occupancy rate (BOR) of 73%, as well as a 20% increase in inpatient days qoq, which translated to longer length of stay, and likely higher revenue intensity, leading to better operational leverage and profitability that was observed for 3Q23.

• KPJ also disclosed that higher bed count in KPJ Dhaka in Bangladesh saw an increase of 11,877 patients in 3Q23, leading to its others segment turning EBITDA positive at RM2.3m from an EBITDA loss of RM8.2m in 2Q23.

One-off Gain Recorded From Completed Sale of PTABSD and KPJM

• KPJ recorded RM41.5m in one-off gain in 3Q23 from the sale of its 100% equity interest in PT Al-Aqar Bumi Serpong Damai (PTABSD) and 75% equity interest in PT KPJ Medica (KPJM), which are its hospitals in Indonesia.

• Excluding the one-off gains, KPJ said in its announcement that it would have recorded an adjusted PATMI (core PATMI) of RM74.0m, translating to a positive net profit impact of RM16.3m from the disposal.

• KPJ has also declared 0.25 sen of special dividend in 3Q23, translating to a dividend amount of RM10.3m, which is more than sufficiently funded out of the proceeds from the asset disposal, on top of its 1.05 sen ordinary dividend.

Reiterate Add; Expecting More Positive Guidance

• We maintain our Add rating with TP unchanged at 30x FY24F P/E (10-year mean). We await more details from its analyst briefing held on the morning of 29 Nov 23.

• We are keeping a lookout on capex guidance and expected number of bed expansion over the next few years as indication of KPJ’s capacity to grow.

• Re-rating catalyst: swifter bed capacity expansion, and pace of divestments.

• Downside risks: delayed construction affecting capacity expansion, and longer gestation period for KPJ Damansara 2 (DSH2).

Source: CGS-CIMB Research - 28 Nov 2023