‘Buy’ call maintained on KPJ, lower target price

PETALING JAYA: Alliancedbs Research is maintaining its “buy” call on KPJ Healthcare Bhd, but with a lower target price of RM1.10 a share compared with its previous target price of RM1.30.

It said although the group’s operations are hampered by the Covid-19 pandemic and extended movement control order (MCO), it believes this was only temporary in nature and its operations will start picking up from the second half of this year.

In yesterday’s trading the stock closed unchanged at 88 sen.

The house said it likes the stock as it serves as a pure play in the Malaysian healthcare space, which is on a secular growth trend driven by a rising and ageing population.

The potential catalyst for this group is higher-than-expected patient volumes driven by improved healthcare affordability, and stronger than-expected profit margin due to lower input costs.

“Post earnings revisions and rolling forward our valuation base to financial year FY21, we maintain our “buy’’ recommendation for KPJ with a lower Sop-based target price of RM1.10.

“This represents a valuation of 27x FY21 earnings per share (EPS), which is in line with its historical mean valuation,’’ Alliancedbs said.

KPJ operates a network of specialist hospitals in the country and Indonesia and a retirement village in Brisbane, Australia.

KPJ also provides pathology and laboratory services, hospital management services, drug and medical distribution, along with operating a nursing college.

A potential re-rating catalyst lies in the valuation gap between KPJ and other regional hospital operators, the house said. KPJ is currently trading at about 20x FY21F EPS, while its more expensive regional peers are trading AT>30XFY21FEPS.

It added that the group’s strategy to focus on the medical tourism segment to sustain its income growth going forward given that it serves as a natural progression for KPJ and could be a lucrative market in the future is positive.

Driven by growing international recognition of Malaysia’s healthcare services, coupled with the intensified marketing campaigns to promote the country’s high quality and value for money healthcare industry, we believe that medical tourism will gain traction going forward.