Below are key takeaways from KPJ’s 2Q24 results briefing:

2Q24 Review

KPJ’s 2Q24 net profit surged 51.7% YoY to RM77.6mn on the back of record quarterly revenue of RM930.6mn (+18.5% YoY). Management shared that 2Q24 bed occupancy rates (BOR) improved 3%-pts YoY to 66%. On the same bed basis, BOR would come in at 71% as KPJ operational bed capacity rose to 3,745 from 3,494 beds in 2Q23. In addition, the growth was supported by higher inpatient and outpatient volumes of 14% and 4% respectively. Moreover, the average revenue per inpatient and outpatient increased by 3% and 4% YoY to RM7,209 and RM295 respectively.

Optimistic of 2H24 Outlook

We believe that KPJ’s 2H24 performance would improve, driven by: i) rebranding efforts, ii) development of Centres of Excellence, iii) robotics programme and iv) higher demand for private healthcare. In our forecast, we estimate a net profit growth of 11.1% to RM312.7mn. Bed capacity expansion remains on track, the group target to raise the number of beds to c. 4,100 by end-2024 (vs. 3,643 beds in 4Q23). Thereafter, KPJ would focus on maximising bed opportunity via brownfield expansion, aiming to hit 5,000 beds by 2028.

As for the 5 hospitals (DSH2, KPJ Batu Pahat, KPJ Dato’ Onn, KPJ Perlis and KPJ Miri) under the gestation period, we gather that only KPJ Miri is reporting LBITDA. Note that all 5 of these hospitals recorded RM137mn losses in FY23, with DSH2 being the main culprit, contributing to c. 58% of the losses. Positively, we expect the group to reduce the RM137mn losses by half in FY24. Management guided that DSH2’s average revenue per month has crossed the RM10mn mark (vs. RM3-4mn per month last year) while losses decreased by more than 100% (last year around RM6-7mn loss per month) boosted by higher number of beds, service expansion and health tourism.

KPJ’s Health Tourism to Grow Double Digit

Malaysia’s health tourism revenue is expected to hit RM2.5bn in FY24 (vs. 2.2bn in 2023). Recall that KPJ’s health tourism revenue of RM190mn in 2023, accounting for 8% of the market share in Malaysia. In 1H24, we understand that KPJ’s health tourism revenue rose to c.RM106mn as compared to RM87mn in 1H23. Overall, management expects the health tourism revenue to grow by 30-40% in FY24. The growth would be fuelled by: i) collaboration with local agencies in Indonesia, ii) gaining market share from Singapore, iii) high demand for KPJ Kuching and iv) 20-30% health tourism growth from its 10 hospitals in the Central region.

Separately, KPJ’s care application would be rolled out by phases. Patients would be able to set appointment and queue, redirection to insurance company portal, purchase medication, health screening packages, access to hospital and doctors’ information and electronic medical record.

Impact

Maintain our FY24-26 earnings estimates.

Valuation

No change to our target price of RM2.00/share based on SOTP valuation and a 3% ESG premium. Reiterate our Hold recommendation on the stock.

Source: TA Research - 30 Aug 2024