KPJ: Healthcare Provider Anticipates Stronger Sequential Earnings Amid Operational Improvements
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading healthcare facilities provider is poised for a robust second half of the year, with analysts expecting strong sequential earnings improvements. The company’s third-quarter (3Q25) core profit is projected to reach approximately MYR97 million, marking a significant 22% quarter-on-quarter and 12% year-on-year increase. This performance is expected to bring the nine-month (9M25) core net profit to around MYR240 million, broadly aligning with analysts’ full-year expectations.
Performance Review and Operational Strengths
The anticipated uplift in net margins is primarily attributed to enhanced operating metrics stemming from six hospitals that are progressing through their gestation periods. These newer facilities are beginning to contribute more significantly to the company’s overall profitability. Furthermore, revenue intensity for both outpatient and inpatient services is expected to remain stable on a quarter-on-quarter basis. Total patient volume is also forecasted to grow by 2.6% year-on-year for 9M25, indicating sustained demand for healthcare services.
The seasonally stronger second half of 2025 is expected to drive this growth, supported by a recovery in elective surgeries and higher bed occupancy rates following the festive period in the first half of the year. This operational momentum underscores the company’s solid turnaround narrative and its pivotal role in the thriving domestic private healthcare sector.
Challenges and Industry Dynamics
Despite the positive outlook, the company faces several potential headwinds. These include the higher-than-expected impact of Sales & Service Tax (SST) from lease agreements implemented on July 1st, ongoing intricate negotiations between insurers and specialists that could influence case mix and billing practices, and the softer-than-expected performance from some newer hospitals, which may weigh on EBITDA margins. The broader healthcare sector is also navigating increasing intervention by insurance payers, introducing a new layer of complexity to hospital-payer relationships.
The company, with its domestic-focused portfolio, extensive hospital network, and large number of independent specialists, is considered to be more exposed to risks arising from these ongoing insurer negotiations compared to its peers.
Future Outlook and Investment Perspective
Analysts maintain a positive outlook, reiterating a BUY recommendation. The improved contributions from hospitals under gestation are expected to provide higher visibility on near-term earnings growth and margin expansion. This ongoing strategic focus positions the company favorably to capitalize on domestic private healthcare demand.
Key downside risks identified include lower-than-expected patient visits, weaker revenue intensity growth, higher-than-expected operating costs, and adverse regulatory changes that could impact the sector.
