Analysts see further revenue improvements in KPJ’s new hospitals

KUCHING: KPJ Healthcare Bhd’s ( KPJ) new and upcoming hospitals are expected to continue improving its revenue prospects but analysts cautioned of risks the hospital operator still faces.

In a report, MIDF Amanah Investment Bank Bhd’s research arm said: “Going forward, we are expecting further improvements in terms of revenue contributions coming from KPJ’s new hospitals as well as its more matured hospitals.

“The anticipated opening of a new hospital ( KPJ Bandar Dato’ Onn) in the third quarter of the financial year 2018 (3QFY18) would further accelerate the revenue growth rate for the year.”

However, it also expected the Indonesian operations to remain loss-making in the foreseeable term mainly due to lack of contract doctors.

“Moreover, the key risks to our forward estimates are the delay in opening of new hospitals, longer thanexpected gestation period for new hospitals, lower-thanexpected inpatient admissions and revenue per patient, and increase in operations cost,” it stressed.

Nevertheless, it said, the cost optimisation initiatives by new hospitals have lifted KPJ’s earnings.

It explained that in 2QFY18, revenue generated from the Malaysian operation improved by 2.9 per cent year- on-year (y- o-y) contributed by the increase in number of patient and complex cases per patient, particularly for KPJ Rawang, KPJ Bandar Maharani and KPJ Pasir Gudang.

In addition, it noted that the commencement of KPJ Perlis from May 17, 2018 had also contributed to revenue.

“Nevertheless, the solid improvement in earnings was mainly contributed by the cost optimisation initiatives by new hospitals which were under gestation period,” it said.

In another note, the research arm of Kenanga Investment Bank Bhd ( Kenanga Research) said, earnings growth is expected to come from narrower losses and profitability for hospitals built two to three years ago including KPJ Rawang, Maharani, Pasir Gudang and Pahang.

“KPJ Perlis (greenfield, 90 beds) has commenced operations in 2Q 2018. Elsewhere, brownfield expansions include KPJ Miri and KPJ Johor Bandar Dato Onn which are expected to start operating by 1Q19. KPJ Kuching are both expected to commence operations by 2Q19,” it added.

Overall, Kenanga Research upgraded its call on the stock to ‘outperform’ from ‘ market perform’. It explained that its ratings upgrade are based on KPJ’s cost optimisation initiatives which are mainly from the new hospitals that were under gestation period are bearing fruits.

On the other hand, MIDF Research downgraded its call to ‘ neutral’ due to the risks that KPJ still faces.