KPJ: Earnings Fall Short of Estimates Despite Revenue Growth; Neutral Rating Maintained

KPJ Healthcare’s financial results for the second quarter of fiscal year 2025 saw its headline net profit increase by 5.7% year-on-year to RM82 million. The core net profit also rose by 8.3% year-on-year, reaching RM84 million. Despite this positive year-on-year growth, these figures fell short of both the investment bank’s and consensus expectations, accounting for only 39% and 37% of full-year forecasts, respectively. The primary reason for this shortfall was attributed to weaker-than-expected bed occupancy rates (BOR) and inpatient volumes, with the Group’s BOR moderating slightly to 62% in 2QFY25, down from 66% recorded in the same period last year.

Performance Drivers

Revenue for the quarter saw a robust 10.0% year-on-year increase, reaching RM1,023.7 million. This growth was predominantly driven by a strong performance in the Malaysia segment, which recorded a 10.6% year-on-year revenue increase. The Group benefited from improved bed capacity and higher patient visits, with inpatient visits seeing a marginal 1.6% year-on-year growth and outpatient visits increasing by 3.8%. The total number of surgeries also rose by 5.1% year-on-year.

Core net profit was further supported by the overall growth in patient volumes and expanded capacity. On a quarter-on-quarter basis, KPJ’s Pre-tax Profit (PBT) margin modestly improved by 2.7 percentage points to 12.8%. This improvement was driven by a lower cost of sales relative to revenue growth, complemented by a higher share of results from associates. Additionally, EBITDA rose 8.4% year-on-year to RM250 million, reflecting stronger hospital activities.

Future Outlook

Looking ahead, the investment bank remains positive on KPJ Healthcare’s growth prospects, which are underpinned by the Group’s robust capacity expansion plan aiming for 6,000 beds by 2026. Management’s ongoing efforts to enhance operational efficiency and optimize underperforming assets are expected to contribute to improved margins, even amidst sector-wide cost pressures. The Group is well-positioned for sustained growth, supported by favorable demographic trends such as an aging population and an expanding middle-income segment, which continue to drive demand for specialised healthcare services and improved accessibility.

The investment bank maintains its FY25F-FY27F earnings projections, anticipating a stronger performance in the second half of FY25, consistent with KPJ’s historical seasonal trends. KPJ also declared an interim dividend of 1.05 sen per share, bringing total dividends declared to date for FY25 to 3.0 sen per share.

Rating and Target Price

Given these factors, the investment bank reiterates its Neutral rating for KPJ Healthcare. The target price has been lowered to RM2.63 based on a sum-of-the-parts (SOTP) valuation, rolling over the valuation base year to FY26F with a 12x EV/EBITDA multiple, which is near the Malaysian hospital average.