Recovery for KPJ to take place as soon as vaccinations kick in

KUALA LUMPUR: KPJ Healthcare Bhd (KPJ) will likely continue to face a challenging year ahead with restrictions still being implemented to curb the spread of Covid-19.

However, analysts are more optimistic on its prospects, as the effects of mass vaccination begin to kick in.

Following the release of its financial year 2020 (FY20) results, the research team at AmInvestment Bank Bhd (AmInvestment) noted that KPJ saw drastic reductions in both FY20’s outpatient and inpatient volumes, which fell by nine per cent year-on-year (y-o-y) to 2.6 million and 26 per cent y-o-y to 247,000 respectively.

However, it said it is optimistic on KPJ’s long-term outlook, with recovery expected to kick in from the fourth quarter of FY21 (4QFY21) onwards.

“We think that KPJ is in for a challenging FY21E, given the movement restrictions and high Covid-19 cases. However, we expect a modest recovery to take place from 4QFY21 onwards as the effects of mass vaccination begin to kick in,” it opined.

It also pointed out that the mass vaccinations are expected to result in a strong, lasting recovery in FY22F.

Aside from that, it noted that the group’s four hospitals, which are in the gestational phase, showed improved performances in 4QFY20 and are anticipated to be profit-making by FY22F.

“KPJ will start to reap the benefits of its previous aggressive expansionary phase by then,” it said.

KPJ’s aggressive expansion phase has also been completed with only one new hospital, KPJ Damansara II, expected to open in 1QFY22.

“Further brownfield and greenfield expansions will take a breather until demand ramps up again,” it said.

KPJ also plans to downsize and restructure its loss-making foreign operations. It noted that KPJ’s foreign operations continued to be loss making, reporting a loss before tax of RM62 million in FY20. (FY19 loss before tax: RM30 mil;opm).

“Despite downsizing its Indonesian endeavours, the group was still subjected to leasing and other fixed costs,” AmInvestment said.

Meanwhile, it noted that KPJ is now obligated to treat Covid-19 patients despite not being suited to handle infectious diseases.

“On a positive note, the number of cases is still low. We believe KPJ’s treating of Covid19 patients would not have any material effect on the group’s bo om line,” it said.

The research team at Kenanga Investment Bank Bhd (Kenanga Research) expected KPJ to continue taking advantage of governments’ incentives in order to mitigate the adverse effects of the pandemic.

“Under the Permai assistance package announced by the Government in January 2021, the group has offered to collaborate with the government hospitals to treat non-Covid-19 patients in an effort to alleviate the strain on the public healthcare system.

“However, the new hospitals under gestation period could continue to be a drag to earnings,” it added.