KPJ: Healthcare Sector Reports Robust Earnings, Positive Outlook Affirms BUY Rating
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 |
| Last Traded | RM0.20 |
| Recommendation |
A leading healthcare provider is poised for sequential earnings improvements, with its upcoming third-quarter 2025 results expected to reflect robust performance. The investment bank anticipates a core profit of approximately MYR97 million for 3Q25, marking a significant 22% quarter-on-quarter and 12% year-on-year increase. This is projected to bring the nine-month 2025 core net profit to MYR240 million, a 25% year-on-year growth. While these figures are largely in line with the bank’s own expectations, they may slightly undershoot consensus forecasts.
Performance Drivers
The projected earnings growth is primarily attributed to improving revenue intensity and enhanced operating metrics from its hospitals under gestation. The second half of 2025 is expected to be seasonally stronger, benefiting from higher bed occupancy rates following the recovery in elective surgeries post the festive period in the first half. The overall net margin is also forecast to improve due to better operating metrics across six hospitals that are still developing their operational efficiency. The healthcare provider’s solid turnaround narrative and its role as a key player in the thriving domestic private healthcare sector underpin the positive sentiment.
Challenges Identified
Despite the strong outlook, certain soft spots are noted for 3Q25. These include a higher-than-expected impact from the Sales & Service Tax (SST) on lease agreements, ongoing negotiations with insurers and specialists that could affect case mix and billing, and a weaker performance from newer hospitals, which may weigh on EBITDA. Given its domestic-focused portfolio and extensive network, the group faces a greater exposure to risks arising from insurer negotiations compared to its peers.
Valuation and Outlook
In light of the revised forecasts and re-evaluation of valuation inputs, the investment bank has maintained its “BUY” recommendation for the healthcare provider. The target price has been slightly adjusted upwards to MYR3.08 from MYR3.05, representing an attractive 15% upside. This revised target price is derived from a discounted cash flow (DCF) model and implies a 16.8x 2026F EV/EBITDA multiple, which is 2.6 standard deviations above its five-year historical average. The forecast for core PATAMI has been subtly tweaked by 1% to -3% due to adjustments in interest and lease expense assumptions, with the base year rolled over to 2026F. The valuation also incorporates a 2% ESG premium. Key risks to this positive outlook include lower-than-expected patient visit numbers, slower revenue intensity growth, and higher-than-expected operating costs.
