• Maintain HOLD (TP: RM1.88). KPJ’s 1HFY24 top-line grew by +14.9% YoY to RM1839mn, supported by better hospital activities. Note that inpatient visits increased by 8.6% YoY to 185,208 patients from 170,515 patients in 1HFY23. In tandem, KPJ’s earnings jumped by +21.8% YoY supported by better performance of the Malaysia segment up by +13.0% YoY. The group's bottom-line figures came in at just 43% and 41% of our and consensus full-year forecast respectively. We deem KPJ’s earnings within expectations, as KPJ historically reports stronger earnings in the second half of the year due to fewer festivities. On top of that, typically, higher patient traffic for elective surgeries, check-ups, and other medical procedures in the second half of the year occurs as patients delay these services until later in the year to use up their annual insurance benefits before they expire. The group declared an interim dividend of 2.00 sen per ordinary share for 1H24, compared to 1.25 sen in 1HFY23. We maintain a HOLD rating with an unchanged TP of RM1.88. Our valuation is derived based on SOP valuation with a WACC of 8.1% and a long-term growth of 2.5%.

• Key highlights. Zooming in on the Malaysia operation, this segment saw an 18.7% YoY improvement in 2QFY24, contributing RM914mn for the current quarter compared to RM771mn in 2QFY23. The better performance from the Malaysia segment was largely due to increased patient visits and expanded bed capacity. Note that KPJ’s bed occupancy rate increase to 66% in 2QFY24 from 63% in 2QFY23.

• Outlook. We maintain a positive outlook on KPJ, particularly due to their emphasis on organic expansion. In the medical tourism sector, we expect KPJ to sustain strong earnings growth driven by rising demand for highquality healthcare services. Additionally, KPJ's focus on digital transformation through investments in new programs and upgrades to older hospitals is expected to improve efficiency and extend service reach. However, we believe the potential for further upside is limited, as the market has already priced in these expectations, with KPJ’s share price rising 56.8% YoY.

Source: BIMB Securities Research - 30 Aug 2024