KPJ HEALTHCARE BHD

FOLLOWING a meeting with KPJ, Kenanga Research said the company is feeling optimistic on its second half 2018 earnings growth.

“Management explained that first half 2018 core profit after tax and minority interest rose 5% due to due to better cost optimisation, higher complex surgical cases from KPJ Rawang, KPJ Pasir Gudang and KPJ Bandar Maharani and higher volumes in outpatient and inpatient.

“Specifically over the past few years, the group has undertaken cost optimisation measures including better inventory and billing systems, and cost management in administration expenses.”

In another strategy to enhance efficiency, Kenanga Research said the group is planning to phase out or convert four-bedded rooms to twin-bedded ones for better rates.

“We expect a strong showing in the second half of 2018, underpinned by ramp up of existing hospitals following the slower second quarter 2018 due to festivals, continuing benefits from cost optimisation initiatives, profitability from hospitals, which were previously at gestation phase (KPJ Klang, Pasir Gudang, Rawang and Muar) and slower new greenfield development.”

Earnings growth, said the research house, is expected to come from narrower losses and profitability for hospitals built two-to-three years ago, including KPJ Klang, Rawang, Maharani, Pasir Gudang and Pahang.

KPJ Perlis (greenfield, 90 beds) has commenced operations in the second quarter of 2018. Beyond 2018, we expect brownfield development, including KPJ Ampang (149 new beds), KPJ Johor (40 new beds) and KPJ Seremban (90 new beds) to drive earnings beyond 2018 of which gestation period are much shorter than greenfield develoment.

“Elsewhere, greenfield expansions include Kuching, Sri Manjung and KPJ Johor Bandar Dato Onn, which are expected to start operating by the second quarter of 2019.

“The group is confident that start-up costs from new openings will be absorbed by incremental ramp-ups from earlier openings; and steady contributions from matured hospitals,” it said.