3QFY17 net profit declined by 6.0% YoY, bringing YTD net profit to RM101.0m (+4.1% YoY), which was below expectations at 61% and 63% of our and consensus’ full year forecasts respectively. 9MFY17 revenue was higher at RM2.39bn (+5.0% YoY), though cost of sales also increased at a steeper pace of 5.6% YoY. We adjusted our earnings by -11% to -15% for FY17F-19F owing to weaker-than-expected revenue growth due to subdued overall patient volume trend, especially in terms of outpatient traffic, coupled with margin compression resulting from increasing costs, competitive pricing and new hospitals in gestation period. While expected to be slower, growth should still be supported by stronger performance from existing hospitals on top of turnaround of new hospitals, as well as inpatient admissions which should continue to increase in tandem with addition of beds from new hospitals and expansion of existing hospitals. Our Neutral call is maintained, but with a lower TP of RM0.90, pegged to 25x our FY18F forecasts. KPJ declared an interim dividend of 0.4 sen per share.

• Group. For 9MFY17, KPJ’s increased revenue was supported by higher number of inpatients (+1.6% YoY) and higher number of operating beds (+4.4% YoY), though the Group recorded flattish outpatient numbers (-0.3% YoY) and lower occupancy rate (-2.6% YoY). Margins declined slightly compared to 9MFY16, with pretax margin and net margins at 6.3% (9MFY16: 6.4%) and 4.2% (9MFY16: 4.3%) respectively.

• Malaysia, KPJ’s main segment, reported 5.2% YoY increase in 3QFY17 revenue, while 9MFY17 revenue was higher by 5.0% YoY. The higher revenue stream was attributed to higher inpatient admissions. PBT increased slightly by 1.6% YoY to RM53.7m for 3QFY17, while PBT margin was lower at 7.0% (3QFY16: 7.3%). Similar PBT margin level was noted in 9MFY17.

• Indonesia operations saw higher 3QFY17 revenue of RM12.7m (+15.7% YoY), due to economies of scale at Bumi Serpong Damai with improved outpatient numbers. 9MFY17 revenue, however was lower YoY due to lower inpatient admissions reported in both hospitals, -12.7% in Permata Hijau and -4.4% in Bumi Serpong Damai during the period compared to 9MFY16.

• Australia segment, which consists of KPJ’s aged care facility registered lower revenue of RM14.8m for 3QFY17, but pretax loss narrowed by 76% YoY to RM0.6m. Cumulatively, 9MFY17 revenue was higher (+3.2% YoY) with lower pretax loss of RM5.7m compared to RM8.1m in 9MFY16. The improvement was due to increase in economies of scale in Jeta Gardens.

Source: PublicInvest Research - 24 Nov 2017