STOCK-KPJ: Healthcare Group Reports Steady Earnings Amid Utilization Headwinds, Rating Maintained

A leading healthcare group recorded a 9.2% year-on-year increase in its headline net profit for the third quarter of fiscal year 2025, reaching RM93.9 million. This growth was primarily driven by higher patient visits and an expansion in bed capacity. Revenue for the quarter rose 8.1% year-on-year to RM1,116.2 million, marking the strongest third-quarter performance to date, largely attributed to robust operations in Malaysia, which saw a 6.7% year-on-year increase in total surgeries.

Despite these gains, the financial results fell short of both analyst and consensus expectations, accounting for 63.5% and 68.3% of full-year forecasts, respectively. The discrepancy was primarily attributed to lower-than-expected bed occupancy rates (BOR) and a decline in inpatient and outpatient volumes. Specifically, BOR saw an 8.3% year-on-year decrease, while inpatient and outpatient volumes declined by 3.1% and 2.3% year-on-year, respectively. Consequently, earnings projections for FY25F-27F have been trimmed by an average of 5%.

Performance Review

The group’s core net profit for 3QFY25 grew by 9.3% year-on-year to RM94 million, up from RM86 million in 3QFY24, underpinned by the aforementioned increase in patient volumes and bed capacity. Quarter-on-quarter, the pre-tax profit margin showed a modest improvement of 0.8 percentage points to 13.6%, bolstered by a 19.2% year-on-year increase in share of results from associates. The group’s EBITDA also expanded by 8.1% year-on-year to RM274 million, reflecting stronger hospital activity.

The company declared an interim dividend of 1.23 sen per share, bringing the total dividends declared to date for FY25 to 4.23 sen per share.

Future Outlook

Management remains optimistic about the group’s future growth prospects. These are supported by ongoing asset optimisation initiatives, planned expansion capacities, and continuous operational enhancements across its network of hospitals. Despite persistent cost pressures and a challenging talent landscape within the healthcare sector, the group is considered well-positioned for sustained growth.

This positive outlook is reinforced by favorable demographic trends, including an aging population and the rising prevalence of chronic diseases, which are expected to drive increased demand for specialized healthcare services. Furthermore, the Ministry of Health’s decision to defer the implementation of the Diagnosis Related Group (DRG) system to 2027 provides a measure of near-term clarity and stability for the sector.

In light of the revised earnings outlook and current valuation, the investment bank has reiterated its Neutral rating for the stock. The target price has been lowered to RM2.53, based on a FY26F 12x EV/EBITDA multiple, reflecting a slight adjustment from the previous target price of RM2.63.