KPJ’s earnings suspect to Covid-19 spending

Lockdowns to curb the increase in Covid-19 cases result in higher overhead costs for the healthcare group 


MIDF Amanah Investment Bank Bhd (MIDF Research) expects the Covid-19 pandemic to continue to be a factor for KPJ Healthcare Bhd moving forward. 

The bank noted the impact of the pandemic through lockdowns to curb the increase in Covid-19 cases resulted in higher overhead costs for the healthcare group. 

It added that despite operations having resumed towards the end of financial year 2021 (FY21), recovery efforts across KPJ Healthcare’s business operations have been hampered by Movement Control Orders and tightened standard operating procedures (SOPs). 

“Despite this, the group has remained vigilant and focused on providing its services to remain resilient. 

“In order to continue relieving the load on the public healthcare system, KPJ Healthcare will continue to widen the adoption of virtual health and digital innovations, as well as public-private cooperation for non-Covid-19 cases,” MIDF Research state in a note yesterday. 

MIDF Research opined as KPJ Healthcare continues to expand its business, it will adamantly adapt working strategies and initiatives to run operations in the post-pandemic world, subsequently advancing in the hospitalisation industry in the near future. As such, the investment bank has maintained a ‘Neutral’ recommendation on KPJ Healthcare with the revised target price (TP) of RM1.14 per share.

It reiterated the positive view on KPJ Healthcare was based on its Malaysian operations as well as its inventiveness to transition into digital healthcare. 

“KPJ Healthcare’s FY21 increase in out-patient and inpatient visits, as well as the surge in surgeries and deliveries performed in its hospitals are a testament to KPJ Healthcare’s resiliency over the impact of lockdowns imposed during the height of Covid-19 infection spread. 

“The rise of Covid-19 infection rate from the Omicron variant is expected to not back down anytime soon, and could pose a risk to KPJ Healthcare’s long-term financial standing,” it noted. 

MIDF Research believes KPJ Healthcare’s financial discipline measures and public-private collaboration, as well as government’s support for the healthcare sector under the National Recovery Plan and Budget 2022, will assist in mitigating the impact of the Omicron variant. 

MIDF Research noted that considering KPJ Healthcare’s FY21 earnings came in within expectations, it believes the group will continue to see an improvement to its earnings this year. 

Therefore, MIDF Research said it has revised KPJ Healthcare’s FY22 and FY23 earnings forecast upward by +23% and +86% respectively. 

In line with the revised estimates, the bank revised its target price to RM1.14 from RM1.06 previously, pegging the price-to-earnings (P/E) ratio of 68 times to the revised 2022 earnings per share (EPS) of 1.7 sen. 

CGS-CIMB Securities Sdn Bhd raised KPJ Healthcare’s financial year 2022 and 2023 forecast (FY22F/23F) core EPS by 6.8% and 1% respectively. 

Its analyst Sherman Lam stated this was done after factoring in lower net interest cost and effective tax rate for KPJ Healthcare coupled with a swifter recovery in associate profits. 

He highlighted KPJ Healthcare’s fourth quarter for year 2021 (4Q21) core EPS improved on better associate earnings and interest cost. 

“We now see KPJ Healthcare’s FY22F core EPS rebounding 1.5 times year-on-year (YoY), then rising 6.5% and 5.3% YoY in FY23F and FY24F respectively. 

“This will be driven by recovery inpatient visitations and associate earnings from gradual lifting of Covid-19 movement and travel restrictions, improved revenue intensity from potential price revisions, increasing case complexity and normalisation of effective tax rate,” he said in a note yesterday. 

Post earnings revision, Lam raised KPJ Healthcare’s TP slightly to RM1.10, based on calendar year 2023 forecast P/E of 33 times (its 10-year mean).

He maintained a ‘Hold’ call on KPJ Healthcare, as the near-term earnings recovery has been priced in by the market. 

Moving forward, he said key upside and downside risks for KPJ Healthcare include faster or slower-than-expected earnings recovery from Covid-19 and turnaround for new hospitals under gestation. 

KPJ Healthcare posted a 27% YoY drop in net profit for 4Q21 to RM18.46 million while revenue for the quarter rose 11% YoY to RM689.12 million underpinned by higher patient numbers. 

KPJ Healthcare declared a single-tier interim dividend of 0.3 sen per share, to be paid on April 22, with an ex-date of March 30. 

For the full year FY21, the group’s net profit declined 54% YoY to RM51.03 million due to an increase in materials costs as a result of complying with the Covid-19 SOP’s requirements. 

Annual revenue, however, rose 9.57% YoY to RM2.63 billion due to increased activities throughout the year, from greater collaboration with the public healthcare sector to treat Covid-19 patients, higher Covid-19 screenings, laboratory testing and vaccination services. 

According to KPJ Healthcare, patient visits increased to 3.06 million in 2021, from 2.88 million in 2020. 

The group’s hospitals also performed 87,051 surgeries and 15,802 delivery cases in 2021, an increase of 7% and 31% respectively in comparison to 2020. 


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