KUALA LUMPUR (Feb 19): Analysts are bullish on KPJ Healthcare Bhd’s prospects, driven by rising demand for healthcare services and inpatient admissions, growth from medical tourism as well as ongoing efforts to hire more consultants in line with hospital expansion.

“We continue to like KPJ’s efforts in identifying and optimising underperforming assets, coupled with improvements in routine business operations and processes. The group's ongoing capacity expansion and strategic emphasis on medical health tourism positions it well for premium pricing, enhancing revenue intensity and economies of scale to counter inflationary pressures,” said PublicInvest Research. 

“With favourable demographic trends, including an ageing population and a growing middle-income segment, KPJ is poised for sustained growth, driven by heightened demand for specialised healthcare services and improved accessibility,” it said in a note. 

Kenanga Investment Bank Bhd in a separate note said that KPJ’s patient throughput will increase by 9% to 72% in the financial year ending Dec 31, 2024 (FY2024) from 67% in FY2023, driven by revenue intensity resulting from the recovery in demand for elective surgeries.

Assuming a lower effective tax rate of 28% and a higher bed occupancy rate of 72%, the research house raised its forecasts for KPJ's net profit by 6% for FY2024 and 5% for FY2025.

“Correspondingly, we lift our target price (TP) by 5% to RM1.95 (previously RM1.86), based on 28 times FY2025 forecast earnings per share (EPS), in line with its regional peers,” said Kenanga. 

Meanwhile, according to MIDF Research, KPJ is poised to sustain a positive trajectory supported by the opening of the KPJ Damansara 2 Hospital, which is the group’s first smart infrastructure and equipped with a 300-bed capacity, as well as the renovations in planning for its hospitals to realise the group’s target of adding an additional 400 beds in 2024.

“We adjust our earnings forecasts by 9% for FY2024 and 1% for FY2025, in addition to adjustments to our valuation with FY2023 results and expectations of more capacity for income from the group’s planned additions to its bed occupancy rate,” MIDF said. The research house raised its TP to RM2.30 (from RM2.12), implying a price-earnings ratio of 26.5 times based on EPS of 8.7 sen forecast for FY2024.

Meanwhile, RHB Research also raised its earnings estimates by 10% for FY2024 and 9% for FY2025, with a higher TP of RM1.86 (from RM1.66), as KPJ still has room for growth supported by its strategic upscaling exercise and space to scale operating efficiency from hospitals under the gestation period.

“Our discounted cash flow-derived TP represents 13 times FY2024 forecast enterprise value/earnings before interest, taxes, depreciation, and amortisation (EV/Ebitda), one standard deviation above its five-year historical EV/Ebitda average of 12 times (narrowing its EV/Ebitda valuation gap against IHH Healthcare Bhd (‘buy’; TP: RM6.90),” RHB added. 

At the time of writing on Monday, KPJ's share price had inched up one sen or 0.61% to RM1.64, giving it a market capitalisation of RM7.42 billion.