FY17 another year of KPJ missing targets
KUALA LUMPUR: Financial year 2017 (FY17) will be another year since FY15 whereby KPJ Healthcare Bhd (KPJ) has missed targets to extend the group’s network, analysts say.
TA Securities Holdings Bhd (TA Securities) noted that KPJ Perlis which was slated to commence operations in the fourth quarter of financial year 2017 (4QFY17) is still awaiting the green light from the Ministry of Health.
Notwithstanding, TA Securities opined that FY17’s patient traffic should at least sustain with management alluding that tie ups with corporate clients are pretty much intact, continuing to account for the bulk of KPJ’s revenue at about 60 per cent to 70 per cent.
On another note, noting that KPJ has been able to keep the group’s cost-plus pricing model intact amidst rising cost, TA Securities now expected the group’s FY17FY19 gross profit (GP) margins to be higher towards the 29 per cent30 per cent range from the 28 per cent-29 per cent range before.
“We are hopeful for the group to achieve greater traction in FY18,” TA Securities said.
Barring delays, the research firm viewed upside to patient traffic from the commencement of five new hospitals – namely KPJ Perlis, KPJ Bandar Dato’ Onn, KPJ BDC, KPJ Miri and KPJ Batu Pahat – and the completion of expansion of four existing hospitals: KPJ Seremban, Sri Manjung, KPJ Johor and KPJ Ampang Puteri.
“The new hospitals will widen and extend the group’s network and leadership in Malaysia from 25 hospitals and 3,052 operating beds currently as well as enable it to tap on opportunities in underserved areas.
“Of note, with KPJ Perlis, the group will be a step closer towards completing its footprint across Malaysia, leaving Melaka and Terengganu as the only states it has yet to penetrate.”
Furthermore, the research firm imagined that the hospital could garner encouraging reception in view that it will be the first private hospital in Perlis.
As for the expanded hospitals, TA Securities believed that KPJ Seremban, KPJ Johor and KPJ Ampang Puteri could ride ahead of the gestation curve given their exposure to matured areas and track record of occupancy rates of above 70 per cent.
The research firm’s base case which accounted for delays projects inpatient traffic growth for FY17, FY18 and FY19 at 2.5,three and four per cent respectively.
According to TA Securities, management reiterated KPJ’s capital expenditure (capex) guidance for FY17-FY19 at RM250 million to RM300 million per annum, mainly to be expended for expansion of the group’s network.
“And of note, this would have been higher if not for upcoming hospitals like KPJ Damansara 2, KPJ Batu Pahat and KPJ Kluang being pursued under an asset light model whereby the group will be leasing the hospitals from the developer.”
With expectations for FY17 to FY19’s cash flow from operations to capex ratio to remain above one-fold, TA Securities expected KPJ’s highly geared balance sheet to be in check with net gearing hovering about the group’s latest of 0.7-fold as at 3QFY17.
Besides, if KPJ intends to unwind the group’s balance sheet, the securities firm opined that likely alternatives in FY18 include the disposal of non-core and unprofitable assets or the pare down of its 38 per cent stake in Al-Aqar Healthcare REIT worth RM384.6 million.
“Management alluded that the sale and leaseback of its five newer hospitals worth RM488 million is unlikely in the near term as the group has yet to fully utilise their investment tax allowances.”
On another note, TA Securities recalled that KPJ had in November 2017 officiated the group’s adoption of IBM’s Watson for Oncology.
The research firm highlighted that KPJ is the first hospital in Malaysia to adopt the service, which is currently available at five of the group’s hospitals -KPJ Damansara, KPJ Ampang Puteri, KPJ Johor, KPJ Ipoh and KPJ Sabah.