KPJ to be main beneficiaries of social healthcare schemes like 1Care for 1Malaysia
KUALA LUMPUR: The proposed 1Care for 1Malaysia government scheme is set to be beneficial to KPJ Healthcare Bhd (KPJ) in the longterm as it would drive earnings growth for its hospitals.
In a company report, AmInvestment Bank Bhd (AmInvestment Bank) explained that the proposed scheme, which was been a reoccurring discussion at the annual Malaysia Health plan conference for the past few years, would encourage private hospitals like KPJ to take up the excess flow of patients from public hospitals.
“Under the proposed scheme, the existing tax-based funded system will be replaced by a mandatory social health insurance scheme.
“It allows public hospitals to give referrals to private hospitals. Citizens are required to pay a fixed proportion of their monthly gross salary to the National Health Care Financing Authority (NHFA),” reported the bank.
They went on to explain that KPJ would be the prime beneficiary of such a change in policy due to their strong presence in almost every state of Malaysia, the full spectrum of services that they offer, and their government linked company (GLC) status.
While there has been no official news as to whether the scheme is currently still in discussion or creation, the bank reported that KPJ’s management is confident that it would materialise in the near future.
“Currently, some Asean countries have rolled out such social healthcare schemes,” said the bank in an a effort to further justify their view.
In the event, the 1Care for 1Malaysia scheme does not materialise however, the bank also added that KPJ would still be the prime beneficiary of any public healthcare scheme rolled-up by the government.
Looking back at KPJ’s current performance, the healthcare group is currently facing concern for its earnings growth due to patient erosion but its management has guided that it would not have a material impact on its earnings growth as its inpatient segment remains health and more than compensate for its loss of outpatients.
And besides that, the bank also points out that 70 per cent of the group’s customers are credit customers backed by insurance and large corporations, which suggests an expected increase in the average revenue per patient as the patients would be able to afford the price revision exercises slated to take place twice this year.
To reflect these projections, the bank has raised its earnings forecasts for FY17-19F by 20, 25, and 25 per cent respectively.
AmInvestment Bank has also maintained its ‘Hold’ recommendation on the KPJ stock with a raised its fair value of RM4.50 from RM4.41, based on a discounted cash flow after applying a discount that is equivalent to KPHH’s weighted average capital cost of 7.41 per cent to a terminal growth rate assumption of 3.5 per cent.