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PP 7767/09/2010(025354)

23 September 2010

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

N ew s Updat e
23 September 2010
MARKET DATELINE

KPJ Healthcare Share Price


Fair Value
:
:
RM3.36
RM4.51
Expanding Into The Aged Care Business Recom : Outperform
(Maintained)

Table 1: Investment Statistics ( KPJ; 5878 ) Bloomberg Ticker: KPJ MK


FYE Dec Revenue Net Profit EPS Growth PER C.EPS* P/NTA Net gearing ROE GDY
(RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009a 1,456.4 110.9 21.0 29.5 16.0 - 3.4 10.9 0.4 17.5
2010f 1,675.5 126.9 24.0 14.1 14.0 23.0 2.8 6.7 0.3 16.7
2011f 1,861.3 140.5 26.6 10.7 12.7 25.0 2.3 6.0 0.3 15.6
2012f 2,065.4 157.6 29.8 12.2 11.3 28.0 1.9 5.5 0.2 14.9
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus based on IBES Estimates

♦ Acquires 51% stake in Jeta Gardens. KPJ announced that it has acquired Issued Capital (m shares) 551.3
Market Cap (RMm) 1,852.2
a 51% stake in Jeta Gardens (Qld) Pty Ltd for a cash consideration of
Daily Trading Vol (m shs) 1.2
RM19m. The purchase consideration will be financed via internally-generated
52wk Price Range (RM) 1.47-3.79
funds.
Major Shareholders: (%)

♦ Background on the acquisition. Jeta Garden is an owner of an aged care


Johor Corporation 50.2
Kumpulan Waqaf An-Nur 8.8
facility with 108 beds, 23 units of retirement villas and 32 units of
Lembaga Tabung Haji 5.1
apartments located on 64 acres of land in Queensland, Australia. We
estimate that the purchase consideration of RM19m was based on the book FYE Dec FY10 FY11 FY12
value of the company, given that its net asset value is worth approximately EPS chg (%) - - -
AUD13.1m. Jeta Gardens reported a net loss of AUD2m for the 12M ending Var to Cons (%) 4.3 6.2 6.4

Jun ’10, which represents approximately 2% of KPJ’s FY10 earnings.


PE Band Chart

♦ Positive for longer tem. Demand for aged care services in Australia has
PER = 13x
been good over the years largely due to the increase in ageing population in PER = 10x
Australia seeking better aged care services. The trend is expected to continue PER = 7x

and KPJ believes that the prospects of the aged care and the retirement
village industry should remain positive moving forward. In addition, in the
recent Economic Transformation Programme Open Day, both Khazanah and
KPJ jointly expressed their interest in improving aged care services in
Malaysia as more ageing individuals seek better aged care services here.
Relative Performance To FBM KLCI
♦ Forecasts. As we have already projected RM200m in capex for FY10, we are
leaving our forecasts unchanged for now.
KPJ Healthcare
♦ Risks. The risk is that KPJ is unable to turn aound the Australia business, or
replicate the business in Malaysia. However we note that the investment cost
represents just 3.4 sen/share, therefore minimal impact to KPJ’s total
earnings. FBM KLCI

♦ Investment case. We are maintaining our indicative fair value of RM4.51,


which is based on target FY11 PER of 17x, at a 10% discount to regional
peers’ average of 18.5x. Given KPJ’s leading position and expansion plans in
Malaysia’s growing healthcare market, we believe the stock’s valuation
discount to regional peers should narrow. We thus reiterate our Outperform
call on the stock.
Yap Huey Chiang
(603) 92802179
yap.huey.chiang@rhb.com.my
Please read important disclosures at the end of this report.

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23 September 2010

Table 2. Earnings Forecasts Table 3. Forecast Assumptions


FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 1,456.4 1,675.5 1,861.3 2,065.4 No. of hospitals 21 23 25


Turnover growth (%) 14.9 15.0 11.1 11.0 No. of beds 2,363 2,646 2,911
No of in-patients 237,943 259,358 282,700
Gross Profit 419.1 485.9 539.8 599.0 No. of out-patients 2,275,469 2,411,998 2,556,717
EV/bed (in RM) 126,723 113,145 102,859
EBITDA 188.3 217.0 241.7 264.5 EBITDA/bed (in RM) 91,846 91,330 90,891
EBITDA margin (%) 12.9 13.0 13.0 12.8 Source: Company data, RHBRI estimates

Depreciation (46.5) (48.6) (55.1) (52.9)


Net Interest (16.7) (14.1) (13.6) (13.8)
Associates 18.9 28.8 30.7 30.7

Pretax Profit 143.9 183.1 203.7 228.5


Tax (29.2) (45.8) (50.9) (57.1)
Minorities (3.9) (10.5) (12.3) (13.8)
Net Profit 110.9 126.9 140.5 157.6
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

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Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
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Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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