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RESULTS UPDATE

Friday, August 17, 2018


FBMKLCI: 1,777.27
Sector: Healthcare

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

KPJ Healthcare Berhad TP: RM1.20 (+5.1%)


Last Traded: RM1.14
Improving Margins from Malaysia Segment Hold
Tan Kam Meng, CFA Tel: +603-2167 9605 kmtan@ta.com.my www.taonline.com.my

Review Share Information


 KPJ’s 1HFY18 net profit of RM84.8mn (+20.4% YoY) came in within ours Bloomberg Code KPJ MK
Stock Code 5878
and consensus estimates at 50.6% and 47.3% of full-year forecasts Listing Main Market
respectively. Share Cap (mn) 4,206.9
Market Cap (RMmn) 4,795.9
 YoY, revenue and EBITDA grew by 4.3% (to RM1624.2mn) and 19.1% (to 52-wk Hi/Lo (RM) 1.17/0.84
RM239.0mn) respectively, driven mainly by the group’s core hospital 12-mth Avg Daily Vol ('000 shrs) 3,487.2
Estimated Free Float (%) 19.8
operations in Malaysia. For this quarter, the group recorded higher Beta 0.6
patient traffic (out-patient +1.2%, in-patient +1.6%). Also, there was Major Shareholders (%)
more complex cases done, particularly in KPJ Rawang, KPJ Bandar Johor Corp - 44.5
EPF - 12.35
Maharani and KPJ Pasir Gudang, contributing to higher revenue per Waqaf An-Nur Corporation Bhd - 7.2
patient (out-patients +1.4% and in-patients +1.8%). Occupancy rates
remained healthy at 67% (+1.0% YoY). Forecast Revision
FY18 FY19
 QoQ, we believe the subdued patient traffic (out-patient -6.0%, in-patient Forecast Revision (%) 3.1 1.6
Net profit (RMmn) 172.7 188.3
-9.1%) was due to Ramadan which fell during 16 May 2018 to 14 June Consensus 179.2 195.4
2018 and festive holidays. TA's / Consensus (%) 96.4 96.4
Previous Rating Buy (Downgraded)
 Meanwhile, the disposal of Jeta Gardens in Australia is expected to
happen in 2H2018. Note that, KPJ owns a 57% stake in Jeta Gardens Pty Financial Indicators
FY18 FY19
Ltd, which operates the business of senior living centre. The proceeds Net gearing (x) 0.7 0.7
are expected to pare down borrowings. Note that the group paid ROAA (%) 4.0 4.3
RM19mn for the 51% stake in Jeta Gardens in 2011. ROAE (%) 9.3 9.9
NTA/Share (RM) 0.4 0.4
 For this quarter, an interim dividend of 0.5sen/share was declared (1H18: Price/ NTA (x) 3.1 3.0
1.0sen/share vs. 1H17: 1.0sen/share).
Scorecard
% of FY
Impact vs. TA 50.6 Within
 Our FY18/FY19 earnings estimates are adjusted by +3.1%/+1.6% to vs. Consensus 47.3 Within
RM172.7mn/RM188.3mn after revising our margins assumptions higher.
Share Performance (%)
Price Change KPJ FBM KLCI
1 mth 11.8 2.3
Outlook 3 mth 22.6 (4.2)
 On the expansion front, over 500 beds are scheduled for commissioning 6 mth 23.9 (3.3)
over 2018-2020, which will support KPJ’s near to medium term earnings 12 mth 9.1 0.1

growth. The group’s total 3,094 operational beds as at 1HFY18


(12-Mth) Share Price relative to the FBMKLCI
represents approximately 22.2% market share (vs total 13,957 private
hospital beds) in Malaysia.

Valuation & Recommendation


 Target Price for KPJ is revised higher to RM1.20/share (previously
RM1.14/share) based on SOTP valuation. We downgrade the stock to
Hold from Buy in view of the narrow upside potential at this juncture.

Source: Bloomberg

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17-Aug-18

Figure 1: Forward PER Figure 2: Forward EV/EBITDA

x x
34.0 17.0
16.5
32.0 16.0
15.5 +1SD: 15.3x
30.0
15.0
Average: 27.3x +1SD: 30.0x
28.0 14.5 Average: 14.5x
14.0
26.0 13.5 -1SD: 13.7x
-1SD: 24.7x
24.0 13.0
12.5
22.0 12.0
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18
Sep-13
Dec-13
Mar-14

Sep-14
Dec-14
Mar-15

Sep-15
Dec-15
Mar-16

Sep-16
Dec-16
Mar-17

Sep-17
Dec-17
Mar-18
Source: Bloomberg, TA Securities Source: Bloomberg, TA Securities

Table 1: SOTP Valuation


Segment Valuation Method Value (RM mn) Stake (%)
Hospital Operations DCF (WACC: 7.4%, LT: 3.0%) 4,795.9 100
Al-Aqar Healthcare REIT Equity Market Value (RM1.24 /share) 343.1 38
5,139.0
Add: Proceeds from Outstanding Warrants 346.5
5,485.5

Fully Diluted Shares (mn) 4,552.5


Target Price/share (RM) RM1.20

Table 2: Earnings Summary


FYE Dec (RM mn') FY16 FY17 FY18F FY19F FY20F
Revenue 2,969.6 3,180.0 3,518.2 3,935.4 4,407.0
EBITDA 384.1 391.1 417.1 442.2 472.5
Depreciation and amortisation (129.9) (127.9) (147.3) (153.5) (158.8)
Net finance costs (65.1) (66.3) (73.2) (75.2) (77.7)
Share of results of associates 33.6 39.5 43.2 47.8 52.9
PBT 220.7 233.3 239.8 261.3 288.9
PAT (-MI) 149.2 161.9 172.7 188.3 208.1

EPS (sen) 3.0 3.2 3.5 3.8 4.2


EPS growth (%) 10.2 8.5 6.7 9.0 10.5
DPS (sen) 1.2 1.8 2.3 2.5 2.7
Div yield (%) 1.1 1.6 2.0 2.2 2.4
PER 38.2 35.2 33.0 30.3 27.4

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17-Aug-18

Table3: 1HFY18 Results Analysis


FYE Dec (RM mn') 2QFY17 1QFY18 2QFY18 QoQ YoY 1HFY17 1HFY18 YoY
% % %
Revenue 778.6 822.9 801.3 (2.6) 2.9 1,557.8 1,624.2 4.3
- Malaysia 752.5 797.3 777.7 (2.5) 3.3 1,503.0 1,575.0 4.8
- Indonesia 11.8 10.7 9.5 (11.4) (19.5) 24.9 20.1 (19.0)
- Australia 14.4 14.9 14.8 (1.0) 2.4 29.1 29.7 2.0
Gross profit 233.2 250.8 242.7 (3.2) 4.1 468.4 493.5 5.3
EBITDA 97.2 119.0 120.0 0.9 23.5 200.7 239.0 19.1
- Malaysia 97.0 116.3 119.4 2.7 23.1 200.1 235.8 17.8
- Indonesia 1.5 1.1 (0.0) >-100 >-100 4.3 1.1 (74.2)
- Australia (1.3) 1.5 0.6 >100 >100 (3.7) 2.1 >100
Depreciation & amortisation 35.7 37.1 37.5 1.0 4.8 67.8 74.5 9.9
EBIT 55.9 70.8 74.0 4.5 32.3 125.6 144.8 15.3
Net finance costs (15.6) (19.2) (19.3) 0.5 24.3 (34.1) (38.6) 13.3
Associate share of results 7.2 9.3 6.8 (27.1) (5.3) 13.8 16.1 17.2
PBT 47.5 60.9 61.4 0.9 29.3 105.3 122.3 16.2
- Malaysia 49.1 63.9 64.0 0.2 30.4 105.4 127.9 21.4
- Indonesia (0.0) (0.7) (1.8) 159.7 3,813.0 0.9 (2.5) (373.1)
- Australia (2.0) 0.5 (0.4) (186.9) (78.8) (5.1) 0.1 (101.2)
Taxation (14.1) (15.9) (16.4) 3.4 16.6 (28.7) (32.3) 12.7
PAT (-MI) 32.2 42.5 42.3 (0.3) 31.6 70.4 84.8 20.4

Profitability ratios (%) pp pp pp


GP margins 29.9 30.5 30.3 (0.2) 0.3 30.1 30.4 0.3
EBITDA margins 12.4 14.4 14.9 0.5 2.5 12.9 14.7 1.8
- Malaysia 12.9 14.6 15.4 0.8 2.5 13.3 15.0 1.7
- Indonesia 12.4 10.5 (0.0) (10.6) (12.5) 17.5 5.6 (11.9)
- Australia (8.8) 10.4 4.1 (6.3) 12.8 (12.7) 7.2 20.0
PBZT margins 6.1 7.4 7.7 0.3 1.6 6.8 7.5 0.8
- Malaysia 6.5 8.0 8.2 0.2 1.7 7.0 8.1 1.1
- Indonesia (0.4) (6.5) (19.0) (12.5) (18.6) 3.7 (12.4) (16.1)
- Australia (13.6) 3.2 (2.8) (6.0) 10.8 (17.6) 0.2 17.8
Taxation 29.7 26.1 26.7 0.7 (2.9) 27.2 26.4 (0.8)
PAT (-MI) margins 4.1 5.2 5.3 0.1 1.2 4.5 5.2 0.7

Operating Statistics
Malaysia Patient Traffic: % % %
- Outpatient 617,485 645,618 607,041 (6.0) (1.7) 1,237,935 1,252,659 1.2
- Inpatient 71,075 76,538 69,590 (9.1) (2.1) 143,810 146,128 1.6

Malaysia Average Patient Revenue: % % %


- Outpatient (RM) 325 338 329 (2.7) 1.2 329 334 1.4
- Inpatient (RM) 7,027 7,186 7,246 0.8 3.1 7,092 7,216 1.8

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(TH I S P A GE IS IN TE N TI ON AL L Y L E F T B L AN K )

(THIS PAGE IS INTENTIONALLY LEFT BLAN

Stock Recommendation Guideline


BUY : Total return within the next 12 months exceeds required rate of return by 5%-point.
HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point.
SELL : Total return is lower than the required rate of return.
Not Rated: The company is not under coverage. The report is for information only.
Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return
if dividend discount model valuation is used to avoid double counting.
Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without
notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this
document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.

As of Friday, August 17, 2018, the analyst, Tan Kam Meng, who prepared this report, has interest in the following securities covered in this report:
(a) nil

Kaladher Govindan – Head of Research

TA SECURITIES HOLDINGS BERHAD (14948-M)


A Participating Organisation of Bursa Malaysia Securities Berhad
Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048
www.ta.com.my

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