Escolar Documentos
Profissional Documentos
Cultura Documentos
Catalysts
• On 23 September 2016, KPJ signed an agreement to collaborate
Company Description with Sebarun Hospital from Korea to set up a Minimal Invasive
KPJ Healthcare Berhad is a leading provider of private Surgery (MIS). Spine Accreditation continues to be their aim in
healthcare services in Malaysia. Since KPJ started its meeting the demand by their patients for quality healthcare. As at
first private specialist hospital in Johor in 1981. Today March 2017, KPJ has 18 MSQH-accredited hospitals and 4 JCI-
they have 2,929 beds across a total of 32 hospitals,
accredited hospitals.
retirement & aged care centres in Malaysia, Indonesia
and Australia. • Besides KWAN and HWAN, KPJ had participated in various other
community services. They have also contributed more than RM1
Key Financials million in terms of cash donations to other parties, including to the
Market Cap 3.797B
‘asnaf’ category and public community programmes for
Basic Shares O/S 4.28B
Free Float 1.82B underprivileged children.
52-Wk High-Low MYR 0.90 – 1.15 • Although, looking ahead we foresee a very challenging fiscal year in
(MYR M) FY15A FY16A FY17E FY18E 2018. The global uncertainty, both from the political and economic
Revenue 2847 3021 3242 3643 aspect, should not be lightly brushed aside. Innovation and
Gr Rate (%) 7.9 6.1 7.3 12.4 technology remains the key to improvement and betterment of KPJ
EBITDA 359 417 415 445 performance. Improving the customer service and strengthening
Margin (%) 7.7 8.1 8.0 8.0 the KPJ branding will also be the focus in 2017. All these will sum
Net Income 145 156 173 191
up to efficient quality care to the patients.
Margin (%) 5.1 5.2 5.3 5.2
ROA 3.7 4.0 4.4 4.8 • Malaysia has the ecosystem and infrastructure to provide quality
ROE 9.3 9.3 9.7 10.1 end-to-end healthcare system and services that are globally
EV/EBITDA 14.9 13.2 13.2 12.1 competitive. Last year, over 860,000 medical travellers sought
P/E Ratio 32 34.1 21.3 22.6 treatment in the country. The number was expected to grow, with
D/A Ratio 39 40 35 30 more private hospitals able to cater to more foreign patients.
Key Executives • With a weaker ringgit, medical tourism is expected to increase. KPJ
Kamaruzzaman Chairman could highly benefit if it takes the first mover advantage.
Abu Kassim
Valuations
Figure 1. Revenue by Geography, 4Q16 Our 12-month price target from date of coverage is RM1.15, representing
a P/E of our FY18 estimates. This reflects a 15% upside to KPJ’s last
traded price of RM0.92. In our view, this target price is appropriate,
given Malaysia’s growing medical tourism industry and the positive
macroeconomic outlook.
Investment Risks
• Delays and longer than expected gestation from expansion of
hospitals. Though we are upbeat on KPJ’s growth prospects
supported by its ongoing projects, we remain cautious on possible
delays or hurdles in project executions and longer-than-expected
gestation period of new hospitals. New projects in the pipeline
include KPJ Perlis, which should open in December this year.
Greenfield projects include KPJ Bandar Dato' Onn and KPJ Miri, both
scheduled to open in mid-2018.
Source: KPJ’s website • Impact on margins from the weaker Ringgit and assuming no
pass through via higher ASPs high net gearing levels, which result in
equity raising over the medium to longer term. Drug and medicals
costs and price revisions will likely be forthcoming by year end
owing to the weakened ringgit. However, KPJ said this will be
implemented delicately due to the potential impact on patient
volume.
Figure 2. USD/MYR • Cost escalation for technology, processes and equipment is another
concern, resulting in rising overall cost for healthcare. At the same
time, insurance companies are negotiating for bigger discounts as
they gain more bargaining power. In this respect, KPJ hopes to
minimize the impact with economies of scale gained through its
expanding network.
• Shortage of healthcare professionals in Malaysia. There is
significant evidence indicating the existence of a worldwide
shortage of healthcare professionals. The problem is more severe in
middle and low-income countries, like Malaysia. A contributing
factor is the drop in National Higher Education Fund Corporation
(PTPTN) loans for students. Moreover, poaching from affluent
neighbours like Singapore, compounds the problem. It is important
Source: xe.com
for us to see how the company develops a compensation package to
attract professionals.
Company Overview
In May 2016, KPJ Pahang Specialist Hospital opened its doors, which
marks the 26th hospital in the network. KPJ is currently undergoing
multiple expansion projects, including 7 hospitals over the next 4 years,
and 6 other existing hospital expansions seeing completion by FY18.
1
3Q17 Earnings Review
• The Group's revenue for the current quarter ended 30
Figure 4. KPJ’s Pahang Specialist Hospital September 2017 was RM803.2 million, an increase of 5% as
compared to RM767.0 million in the corresponding quarter of
the preceding year. The Malaysia segment saw a revenue
increase of 5% due to increasing inpatient numbers, while the
Indonesian segment reported an increase of 15% on the back of
economies of scale with the higher number of outpatients.
Industry Outlook
Figure 5. Cost of Medical Procedures The healthcare industry in the Asia-Pacific region remains one of the
fastest growing regions globally with a growth rate of 8 percent this year,
even as the global growth rate is only pegged at 4.8 percent. Within
Malaysia, household spending is set to grow at a CAGR of 5.3% for the
next five years will private healthcare insurance has been growing at a
rate of 6.6% YoY. Furthermore, there is a relative shortfall of hospital
beds in Malaysia, 30% less than the worldwide ratio median, leaving
much room for the sector to grow.
Source: Frost & Sullivan Under Malaysia’s 12 National Key Economic Areas (NKEAs), healthcare
tourism is estimated to generate RM9.6 billion in revenue and RM4.3
billion in gross national income, and will create 5,300 jobs by 2020. In
2016 alone, 882,000 medical tourism travellers visited Malaysia and
some 1.9 million foreign patients are expected to visit annually by 2020.
Figure 6. KPJ’s Marketing Strategies For KPJ, with its 26 specialist hospitals in Malaysia, it has great growth
potential in this area, with the current percentage of foreign patients at
less than 10%.
The relative weakness of the ringgit has increased the cost of medical
drugs and equipment, putting temporal pressure on the medical
industry in Malaysia by increasing the cost of operation. However, it also
has a positive effect for hospitals that cater to many foreign patients, who
are attracted by the weak ringgit to carry out their procedures in the
country.
Investment Thesis
Source: KPJ Annual Report
1. Organic growth of 4.1% YoY in revenue 3Q17 will be sustained
with KPJ’s aggressive expansionary development
2
Malaysia to capture the local market share of healthcare, which
is currently sitting at 23%
3
Figure 8: Medical Tourism Growth
Overview
Profitability Ratios
• KPJ’s profit margins has been relatively steady over the past
Source: NUS Investment Society Estimates
year, and is expected to increase in the future as hospitals
increase their capacity. The expected gestation period for new
hospitals is 3-5 years.
• We believe the hospital extensions will allow KPJ to have greater
economies of scale, as operating expenses mainly come from the
Figure 10: KPJ Borrowings
pay of medical professionals.
• With multiple hospital expansion plans seeing completion
coming FY18, we expect growth to pick up and see an expansion
of margins as costs grow at a slower rate than revenues.
Financial Leverage
4
Valuations
Figure 11: Valuation Summary Valuation Price Target: $1.15
DCF Model
Revenue Growth
Relative Valuation
Using P/E and EV/EBITDA, KPJ is moderately priced relative to other
healthcare service providers in the region. Given the positive
macroeconomic factors and the increasing demand for healthcare, we
are optimistic about the outlooks of KPJ to grow its revenue and increase
its cashflow. Using comparables as benchmarks, we believe that our
valuation of KPJ is justified.
5
Disclaimer
This research material has been prepared by NUS Invest. NUS Invest specifically prohibits the redistribution of this material in whole or in
part without the written permission of NUS Invest. The research officer(s) primarily responsible for the content of this research material, in
whole or in part, certifies that their views are accurately expressed and they will not receive direct or indirect compensation in exchange for
expressing specific recommendations or views in this research material. Whilst we have taken all reasonable care to ensure that the
information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or
completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report
is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment
objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given
and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons
acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the
securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a
commitment to invest in the securities. This report is published solely for information purposes, it does not constitute an advertisement and
is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty,
either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. The
research material should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this
research material are subject to change without notice.
6
Appendix:
Financial Ratios
7
8
9
Valuation
10