KUALA LUMPUR: CGS-CIMB Research remains positive on KPJ Healthcare Bhd's (KPJ) long-term earnings growth, backed by the contribution of its 29th hospital, Damansara Specialist Hospital (DSH2).
After its recent briefing at DSH2, the firm said DSH2 has a few key competitive advantages, including comprehensive multi-disciplinary services, a vast number of resident consultant specialists and sessional specialists, a strategic location at Bukit Lanjan, and modern medical and surgical equipment.
"The hospital minimises patients' stays and encourages ambulatory care, which improves patient experience/outcomes, utilisation and profitability/returns.
"We stay positive on KPJ Healthcare after visiting its new DSH2, which will incur gestation losses but may turn the profit after tax (PAT) positive after 3.5 years," it said in a note.
KPJ Healthcare shared that it is positioning DSH2 as its flagship and premium health tourism (HT) hospital in Malaysia by securing additional global insurance panelships and setting up cashless payment facilities.
CGS-CIMB Research said DSH2's bed occupancy rates (BOR) are currently less than 20 per cent, fairly healthy for a new hospital, with foreign patients making up 30 per cent of its base.
"KPJ expects foreign patients to make up circa 50 per cent of DSH2's base over time, potentially helping to lift the group's HT revenue beyond the financial year 2019 (FY19) level of RM150 million in FY23-FY24," it said.
Meanwhile, CGS-CIMB Research said DSH2 currently has a capacity of 60 licensed beds and will have 123 beds by the end of 2023.
KPJ Healthcare may open up more capacity for a total of 205/265 beds by end-2024/2025, it said.
"We gather that the capital expenditures (capex) for fitting out these beds are minimal.
"Its new Kuala Selangor hospital is also expected to open at the end of 2023 or early 2024, though this should not be as capex-intensive as its other hospitals, as it will be leased and have only circa 100 beds.
"Reiterate 'Add' with a target price (TP) of RM1.18. We keep our forecasts and target price for KPJ Healthcare for now, as we have baked in DSH2's gestation losses in FY22-FY24, but the flag we have yet to impute is KPJ Kuala Selangor's capex, pending clarity from management," it added.