KPJ Healthcare Berhad (KPJ) is set to continue its positive outlook from the second half of 2024 well into 2025, as analysts upgrade its net profit forecast by 8% citing operational efficiency, cost optimisation and overhead absorption (through increment of beds).

Kenanga noted that patient throughput for the medical group shows not sign of slowing down and has sustained longer than expected. The second half of 2024 (2HFY24) will see KPJ perform beyond earlier assumption, leading to an upward revision of its target price to RM2.11 and a MARKET PERFORM rating.

The 2HFY24 period could benefit from a lower effective tax rate as tax benefits from unused capital allowances and tax losses of new operations are channeled towards tax allowances in the final quarter. Given that the second half of the year is typically stronger than the first half, analysts have upgraded the 2024 forecast of net profit by 5%.

Beyond 2024, KPJ's earnings will be driven by organic growth and operational efficiency. It will add more than 1,500 beds (30%+ increment), bringing the total number of beds to 5,000 over the next five years. In terms of bottom-line profitablility, analysts expect earnings to gain momentum moving into 2025 due to operational efficiency from its cost optimisation and overhead absorption rate as seen in the gradual ramp-up in installing new beds.

With incremental revenues from higher patient count, Damansara Specialist Hospital 2 (DSH2), KPJ Perlis, KPJ Batu Pahat and KPJ Bandar Dato Onn have already turned EBITDA-positive in the first half of this year, while KPJ Miri is expected to achieve the same at the end of 2024. (EBITDA = Earnings Before Interest, Taxes and Depreciation/Amortisation) DSH2 is targeting 50% of medical tourism contribution in 2024 and 2025 by offering cardiac services through collaboration with consultants to bring in patients from the Middle East.