KPJ Healthcare Berhad Higher operating expenses a drag on earnings

Transcription

1 24 November QFY17 Results Review KPJ Healthcare Berhad Higher operating expenses a drag on earnings INVESTMENT HIGHLIGHTS 3QFY17 earnings below expectations at RM30.6m Revenue boosted by organic growth from existing and new hospitals Overseas operating performance remains lackluster Operational headline numbers remain intact FY17-18F earnings revised down by -11.6% and -8.1% Maintain NEUTRAL with a revised TP of RM1.06 per share Maintain NEUTRAL Revised Target Price: RM1.06 (Previously RM1.08) RETURN STATS Price (23 November 2017) Target Price RM1.02 RM1.06 Expected Share Price Return +4.0% Expected Dividend Yield +2.0% Below expectations. KPJ s 3QFY17 normalised earnings came in at RM30.6m which is below our and consensus expectations, accounting for 70% of earnings forecasts respectively. Revenue grew by +4.7% yoy but earnings dipped by -6.0% yoy. On a quarterly sequential basis, KPJ s revenue increase was marginal by +1.3% whilst earnings declined by -4.8%. In addition, a third interim dividend of 0.38sen was also declared for the quarter. Revenue boosted by organic growth from existing and new hospitals. In 3QFY17, KPJ s increase in revenue was mainly due to the combination of organic growth from existing hospitals as well as the increasing revenue from newly opened hospitals across all markets. The revenue from Malaysian hospitals increased by +5.0% yoy attributable to the increase in revenue generated by its newly opened hospital KPJ Pahang. The increase in revenue is also contributed by existing hospitals which have improved last financial year. However, earnings dipped during the quarter due to higher operating expenses. Overseas operations remain lackluster. KPJ s Indonesian cumulative operations revenue is still lower by -4.3% yoy. However, EBITDA climbed by +1.9% yoy mainly due to the economies of scale of Rumah Sakit (RS) Medika Bumi Serpong Damai. Meanwhile, its Australian aged care service also reported improvements in revenue of +3.2% yoy which is mainly attributed to the higher capacity of the retirement village with additional beds which has been opened in phases from mid of 2015 until May Meanwhile, on the PBT basis, it remains loss making due to higher operating expenses incurred. Operational headline numbers remain intact. In 3QFY17, we note that the number of admissions for inpatient was up marginally by +1.6%yoy whilst outpatient admission was down marginally by - 0.3%yoy. Inpatient admission was recorded at 215,499 for the 3QFY17 vs 212,187 in 3QFY16 while occupancy rate for beds declined to 65.7% (vs 67.5% in 3QFY16) with an average length of stay of 2.55days. Expected Total Return +6.0% STOCK INFO KLCI 1,721.3 Bursa / Bloomberg Board / Sector Syariah Compliant MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures 5878 / KPJ MK Main / Trading Services Yes Issued shares (mil) 4, Market cap. (RM m) 4,302.1 Price over NA wk price Range RM0.96 RM1.14 Beta (against KLCI) mth Avg Daily Vol 2.18m 3-mth Avg Daily Value Major Shareholders (%) RM2.30m Johor Corporation EPF Waqaf An-Nur Corp 7.22

2 Earnings forecast. Post earnings announcement, we are revising our FY17-18F earnings forecasts down by -11.6% and -8.1% respectively as we input higher operating expenses arising from the absence in price revisions during the year. The key risks to our earnings are: (i)delay in opening of new hospitals; (ii)longer-than-expected gestation period for new hospitals; (iii) lower-than-expected inpatient admissions and revenue per patient and; (iv) increasing cost of operations. Maintain NEUTRAL with a revised Target Price (TP) of RM1.06. Post earnings announcement, we are reiterating our NEUTRAL recommendation on KPJ with a revised SOP-based TP of RM1.06 per share (TG: 3.0%, WACC: 8.32%). Going forward, we anticipate higher contribution from newly opened hospitals as well as improvements in contribution coming from its more matured hospitals. However, challenges persist as competition from public hospitals, general practitioners (GPs) and other private hospital operators are intensifying with all parties trying to provide the best valuefor-money healthcare services. In addition, we opine that the absence of price revision since early of this year could potentially hurt earnings due to higher operating expenses incurred. Table 1: KPJ s quarterly earnings review FYE Dec (RM'm) Quarterly results Cumulative results 3QFY16 2QFY17 3QFY17 QoQ (%) YoY (%) 9MFY16 9MFY17 YoY (%) Revenue , , Cost of sales (536.5) (556.0) (569.4) (1,591.2) (1,679.9) 5.6 Gross Profit (1.4) Expenses (181.6) (188.4) (185.8) (1.4) 2.3 (1,591.2) (552.7) (65.3) Other Income (2.7) EBIT (1.3) Finance income (18.7) Finance cost (18.1) (19.8) (16.8) (15.3) (7.5) (55.3) (57.5) 3.9 Share of profit-associates (2.2) (13.6) Profit Before Tax & Zakat Zakat (0.6) (1.9) (0.7) (61.4) 27.4 (1.7) (3.0) 75.9 Income Tax Expense (14.2) (12.3) (16.5) (42.5) (43.0) 1.1 Profit After Tax (3.5) Non-controlling interest (1.8) 0.7 (2.5) (455.9) 42.2 (4.2) (3.6) (15.0) PATANCI (4.8) (6.0) Exceptional Items (EI) nm nm 0.0 (13.2) nm Normalised earnings (4.8) (6.0) Basic EPS (sen) nm (7.6) Diluted EPS (sen) nm (6.2) Dividend per share (sen) nm GP margin (%) (2.6) (3.2) (1.2) EBIT margin (%) (2.6) (2.4) PBT margin (%) (2.0) (2.2) PAT margin (%) (7.8) (2.8) PATANCI margin (%) (6.0) (10.2) (2.1) Tax rate (%) (1.5) Source: Company, MIDFR 2

3 Table 2: KPJ Healthcare s quarterly segmental earnings review FYE Dec (RM'm) Revenue Quarterly results Cumulative results 3QFY16 2QFY17 3QFY17 QoQ (%) YoY (%) 9MFY16 9MFY17 YoY (%) Malaysia Hospitals , , Indonesia Hospitals (4.3) Thailand Hospital Australia's Aged Care Facility (20.8) Support Services, Corporate & Others (6.5) Eliminations nm nm nm Total , , Profit Before Tax & Zakat Malaysia Hospitals Indonesia Hospitals (1.0) (0.0) 0.3 (845.7) (133.9) (0.2) 1.3 (821.8) Thailand Hospital Australia's Aged Care Facility (2.4) (2.0) (0.6) (70.4) (75.7) (8.1) (5.7) (29.6) Support Services, Corporate & Others (0.3) (1.9) (3.1) (2.2) (4.1) nm Total Source: Company, MIDFR Table 3: KPJ s SOP valuation Items RM'm Remarks KPJ Enterprise value 5,328.7 DCF method, WACC: 8.32%, TG: 3% Net debt FY18 1,103.4 KPJ firm value 4,225.3 KPJ Al-Aqar REIT Based on KPJ's 38% stake and consensus TP: RM1.70 Total KPJ firm value 4,695.7 Proceeds from warrants Cash proceeds from rights and warrants 5,051.6 No.of shares (m) 4,760.0 KPJ value per share 1.06 Source: MIDFR 3

4 Table 4: KPJ Healthcare s capacity expansion plan (Greenfield) Project Location Total Capacity (beds) First Phase (beds) Completion Opening Perlis Perlis Q2017 4Q2017 Kuching Sarawak Q2018 3Q2018 Miri Sarawak Q2018 4Q2018 Bandar Dato' Onn Johor Q2018 2Q2018 UTM Johor TBA Nilai Negeri Sembilan TBA Bayuemas, Klang Selangor TBA Source: Company INVESTMENT STATISTICS FYE Dec (RM'm) FY2014 FY2015 FY2016 FY2017F FY2018F Revenue 2, , , , ,882.8 Cost of sales (1,869.7) (2,021.2) (2,123.1) (2,433.5) (2,646.1) Gross profit , ,236.7 Finance costs (42.9) (50.4) (83.1) (72.9) (77.2) Profit before tax and zakat Income tax expense (68.6) (62.2) (50.5) (61.7) (84.0) Net Profit PBT Margin (%) Net Profit Margin (%) EPS (sen) EPS Growth (%) PER (x) Dividend per share (sen) Dividend yield (%) Tax rate (%) Source: Company, Forecasts by MIDFR DAILY PRICE CHART Noor Athila Mohd Razali noor.athila@midf.com.my

5 MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad ( X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL Total return is expected to be >10% over the next 12 months. Stock price is expected to rise by >10% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -10% and +10% over the next 12 months. SELL TRADING SELL Total return is expected to be <10% over the next 12 months. Stock price is expected to fall by >10% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 5