KPJ Healthcare showing upward trend, supported by better financials

KPJ Healthcare Bhd Is gaining momentum retracing from its low of RM2.04 in mid-Oct. Fundamentally KPJ Is showing strength, reporting a 62% yoy jump in net profit to RM75.9 million in 2QFY24. For the 1HFY24, bottom line rose 50% to RM147.3 million. The group is on track to meet consensus net earnings estimate of RM297.9 million in FY Dec 2024, increasing further to RM336.5 million in FY Dec 2025.

In terms of valuation, this implies prospective PERs of 31.5x this year and 27.9x next year, respectively. KPJ is looking healthier having lowered its gearing and better cash flow. Out of the 29 hospitals in the KPJ network, 19 have been injected into Al’Aqar Healthcare Real Estate Investment Trust (REIT), in which KPJ owns 34%. The REIT collects rental income from KPJ. KPJ’s net gearing declined from 0.62 times in FY2019 to 0.44 times in FY2023.

It has also cleaned up operations that were dragging its books. The disposal of its two hospitals in Indonesia and aged care operations in Australia has cut ongoing losses. KPJ still has specialist hospital KPJ Dhaka in Bangladesh and an associate stake in Vejthani Hospital, Bangkok, Thailand. Moving forward, the healthcare operator plans to expand regionally once the local market reaches saturation.

However, KPJ does not intend to build a hospital overseas or run the operations on its own. Instead, it would opt for a strategic collaboration, similar to what it has with its associate Vejthani Hospital.

It will also exciting for the group as health tourism tourism in the country grows. This is KPJ’s next source of growth, eyeing health tourists, particulary from Indonesia. Indochina, where there is a fast-growing middle-income population, is also a potential market for the group.

In FY2023, medical tourism contributed RM190 million (about 5.5%) to group revenue. As a segment, revenue from medical tourism increased 41% from a year ago. KPJ has big plans to grow this segment and this should give investors’ some confidence that he share price will reflect is better prospects.