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“Post-3q22 results, we raise our FY22 to FY24 forecast core earnings per share by 8.6% to 27.4%, mainly to factor in lower operating expenditure and depreciation, as well as higher associates earnings.” JO9-JIMI 4 s )r.2

KUALA LUMPUR: A better-than-expected recovery in patient volume and operational efficiency is bolstering KPJ Healthcare Bhd’s prospects, even as it comes off a stellar set of financial results.

KPJ reported a core profit after tax and minority interest or Patami of Rm54.6mil in the third quarter of financial year 2022 (3Q22), which was double that of the immediate preceding quarter.

The healthcare group declared an interim dividend of one sen, going ex on Dec 12, 2022, as compared with a payout of 0.3 sen in the same quarter last year.

According to Hong Leong Investment Bank (HLIB) Research, the results were above its and consensus expectations at 95% of fullyear forecasts.

“The stellar results were achieved mainly due to stronger-than-expected recovery in hospital operations post-pandemic.

“We raise our financial year 2022 (FY22)FY24 earnings forecasts by 20% to 36%, to better reflect the strong rebound in patient volume and operational efficiency,” said the research firm in a note.

It reiterated a “buy” call on KPJ while raising its target price (TP) to RM1.27 from RM1.13 previously.

On its outlook, HLIB Research noted KPJ has entered into a sale and leaseback agreement with Al-aqar Healthcare REIT for three of its hospitals – KPJ Pasir Gudang, and the two new buildings of KPJ Seremban Specialist Hospital and KPJ Penang – for a total consideration of Rm192mil satisfied in cash and new Al-aqar shares.

It said the disposal is expected to result in a one-off gain of about Rm3.8mil. “Cash proceeds received will mainly be used to repay sukuk (Rm90mil) and bank facilities (Rm45mil).

“The debt repayment is expected to lower KPJ’S net gearing to 0.61 times, from 0.68 times. The proposed sale is expected to complete by 1Q23,” said HLIB Research.

In a separate report, CGS-CIMB Research noted that patient volume and bed occupancy rates have surpassed even pre-pandemic levels, possibly owing to underlying demand and pent-up demand from patients who had deferred surgeries during the Covid lockdowns.

“Post-3q22 results, we raise our FY22 to FY24 forecast core earnings per share by 8.6% to 27.4%, mainly to factor in lower operating expenditure and depreciation, as well as higher associates earnings.

“We raise our FY22-FY24 payout ratio assumption to 70%, leading to yields of 2.5% to 3%. Our TP rises to RM1.18, after our earnings upgrade and rolling over to 2024 forecast price-earnings of 32 times (still 10-year mean),” it added.

CGS-CIMB Research noted the re-rating catalysts include full earnings recovery and rising health tourism contribution, while the downside risks are severe Covid-19 waves and longer gestation periods for new hospitals.

In terms of environmental, social and governance, it believes that KPJ has made strides in improving its sustainability reporting and has set clear sustainability goals.