KPJ to end FY23 with a bang as patient throughput shows no signs of waning

KUCHING: KPJ Healthcare Bhd (KPJ) is expected to finish off its financial year 2023 (FY23) with strong fourth quarter (4Q) results as the healthcare group’s patient throughput has shown no signs of slowing down.

In a company update report by the research arm of Kenanga Investment Bank Bhd (Kenanga Research), analysts highlighted that their recent channel checks point to no sign of slowing patient throughput at KPJ hospitals despite anticipation of pent-up demand for elective surgeries from the pandemic tapering off.

The research arm said that this would pave away for a strong performance for KPJ in 4QFY23 which could potentially be further boosted by a lower effective tax rate as they note the healthcare group has historically utilised its tax benefits arising from unutilised capital allowances and tax losses in 4Q.

“Coupled with 4Q typically being KPJ’s strongest quarter, our FY23 forward (F) net profit of RM228 million appears to be a conservative estimate,” said the research arm.

To better reflect this renewed optimism in KPJ’s 4QFY23 results, Kenanga Research guided that they are now expecting the group’s 4QFY23F net profit to come in at RM75 million, representing an 11 per cent quarter on quarter (q-o-q) and 4 per cent year on year (yo-y) growth.

And should the unreleased 4QFY23 results end up falling within Kenanga research’s forecast, KPJ’s forecasted full year FY23 core net profit is expected to rise by 5 per cent to RM239 million.

Similarly, Kenanga Research has also raised their FY24F core net profit forecast by 5 per cent to RM259.3 million while also introducing their FY25F core net profit of RM2928 million.

Looking forward in FY24, the Kenanga Research opines that KPJ’s earnings growth will continue to gain momentum and will be largely driven by organic growth and operational efficiencies.

The operational efficiencies in question are KPJ’s ongoing cost optimisation efforts and improving overhead absorption rates as a result of a gradual ramp-up in the opening of new beds.

“Hence, having gained incremental revenue underpinned by higher patient throughput, the group’s two hospitals under gestation have turned EBITDA-positive. Only three hospitals namely Miri, Perlis and Damansara Specialist Hospital 2 (DSH2) are still recording losses,” the research arm said.

“The group expect Miri, Perlis and DSH2 to be EBITDA-breakeven by end-2024 as their revenues are gaining momentum,” they added.

To recap, the group’s DSH2 posted losses of RM89 million in the first nine months of financial year 2023 (9MFY23). The hospital is expected to increase its bed capacity from 60-123 beds in 2023 to 205 to 265 beds by 2025.

Additionally, they are targeting 30 to 50 per cent medical tourism portion in FY24 and FY25 by offering cardiac services through collaboration with consultant to bring in patients from the Middle East.

From these efforts, KPJ is targeting to achieve RM300 to RM400 million in medical tourism revenue in FY24 which is a huge boost as it would account for an estimated 9 to 12 per cent of its forecasted FY24 revenue compared to its historical 2 to 4 per cent.

And in the longer-term KPJ is targeting to achieve an EBITDA margin of 28 per cent which is higher compared to Kenanga Research’s FY23 to FY24F forecast of 23 per cent.

“We believe management is focused and committed towards bottom-line profitability following the divestment of its lossmaking Indonesian operations and Jeta Garden, its aged care and retirement village business in Australia,” the research arm mused.