KPJ Healthcare Bhd (Feb 10, RM5.01)
Maintain buy with higher fair value of RM5.84 from RM5.21: On Feb 28, KPJ is due to release its FY11 results, which we expect to come in within our and consensus estimates.
With Integrated Healthcare Holdings’ (IHH) upcoming listing possibly sparking an upward sector rerating, we hold firm to our view that KPJ is an excellent long-term investment for portfolio balancing with immense growth potential in a defensive sector.
We expect KPJ to sustain strong top line growth of about 13% to 15% year-on-year (y-o-y). However, due to slower yield growth at new hospitals such as Tawakkal Specialist, Penang Specialist and Bumi Serpong Damai (BSD) in Jakarta, group profit before tax (PBT) growth may come in at a more moderate 8% to 10% y-o-y.
That said, following an increase in capacity, yields started to improve at Penang Specialist while Tawakkal Specialist has started to show moderate yield improvement. As BSD is still in its gestation phase, it is expected to remain in the red but should perform over time as it develops a stronger patient base.
Bandar Baru Klang Specialist Hospital, on which construction was completed late last year, is expected to start operating in March, pending further regulatory approvals.
Four of KPJ’s new hospitals are under construction while work on another three is expected to start this year. Other than greenfield projects, KPJ is still on the lookout for potential acquisitions locally and abroad as part of its expansion strategy.
Its goal of reaching RM2 billion revenue for 2012 is highly achievable in view of the increase in patient capacity and higher facility utilisation.
We gather that its earlier acquisition of 51% equity interest in Jeta Gardens, which operates a nursing home in Queensland, Australia, was completed in late 2011 and has turned in a marginal net profit.
We maintain our forecast but are incorporating an enlarged share base of 594.3 million against 566.3 million previously as some of KPJ’s warrants have been exercised.
This accordingly dilutes our FY11 and FY12 earnings per share (EPS) by 4.9%. In line with the upward regional sector price-earnings ratio rerating, we are raising our price-earnings ratio on KPJ from 19.6 times to 23.1 times on FY12 EPS, based on a market cap weighted average regional sector PER. We maintain our “buy” recommendation on KPJ, but at a higher fair value of RM5.84, up from RM5.21 previously. — OSK Research, Feb 10
This article appeared in The Edge Financial Daily, February 13, 2012.
Maintain buy with higher fair value of RM5.84 from RM5.21: On Feb 28, KPJ is due to release its FY11 results, which we expect to come in within our and consensus estimates.
With Integrated Healthcare Holdings’ (IHH) upcoming listing possibly sparking an upward sector rerating, we hold firm to our view that KPJ is an excellent long-term investment for portfolio balancing with immense growth potential in a defensive sector.
We expect KPJ to sustain strong top line growth of about 13% to 15% year-on-year (y-o-y). However, due to slower yield growth at new hospitals such as Tawakkal Specialist, Penang Specialist and Bumi Serpong Damai (BSD) in Jakarta, group profit before tax (PBT) growth may come in at a more moderate 8% to 10% y-o-y.
That said, following an increase in capacity, yields started to improve at Penang Specialist while Tawakkal Specialist has started to show moderate yield improvement. As BSD is still in its gestation phase, it is expected to remain in the red but should perform over time as it develops a stronger patient base.
Bandar Baru Klang Specialist Hospital, on which construction was completed late last year, is expected to start operating in March, pending further regulatory approvals.
Four of KPJ’s new hospitals are under construction while work on another three is expected to start this year. Other than greenfield projects, KPJ is still on the lookout for potential acquisitions locally and abroad as part of its expansion strategy.
Its goal of reaching RM2 billion revenue for 2012 is highly achievable in view of the increase in patient capacity and higher facility utilisation.
We gather that its earlier acquisition of 51% equity interest in Jeta Gardens, which operates a nursing home in Queensland, Australia, was completed in late 2011 and has turned in a marginal net profit.
We maintain our forecast but are incorporating an enlarged share base of 594.3 million against 566.3 million previously as some of KPJ’s warrants have been exercised.
This accordingly dilutes our FY11 and FY12 earnings per share (EPS) by 4.9%. In line with the upward regional sector price-earnings ratio rerating, we are raising our price-earnings ratio on KPJ from 19.6 times to 23.1 times on FY12 EPS, based on a market cap weighted average regional sector PER. We maintain our “buy” recommendation on KPJ, but at a higher fair value of RM5.84, up from RM5.21 previously. — OSK Research, Feb 10
This article appeared in The Edge Financial Daily, February 13, 2012.
