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HLIB Research: KPJ's organic growth to be bolstered by its expansion plans

KUALA LUMPUR: KPJ's organic growth in the near term is expected to be bolstered by its expansion plans, according to Hong Leong Investment Bank Bhd (HLIB Research). 

The firm said KPJ is now shifting its focus to optimising existing hospital capacity, after completing a series of greenfield expansions pre-Covid. 

It was also noted that the company will be prioritising brownfield projects over greenfield, which has a longer gestation period. 

"In the near term, KPJ aims to add 368 beds, an increase of 9.9 per cent, bringing the total to 4,101 beds.  

"The additional capacity will support KPJ's organic growth in the near term.  

"Furthermore, KPJ is looking to expand its market share in Malaysia's healthcare tourism sector, which is expected to see considerable growth over the next few years," it said in a note. 

Meanwhile, HLIB Research said KPJ's first quarter ended March 31, 2024 (1Q24) core profit after tax and minority interest (PATMI) of RM51.2 million came in below expectations, accounting for 13.4 per cent and 10.9 per cent of the firm's and consensus' full year estimates. 

The negative deviation was mainly attributed to higher-than-expected tax expenses, while revenue was in line.  

The core PATMI was calculated by excluding extraordinary items (EIs), totaling RM24.7 million.  

These items primarily stemmed from the provisional extinguishment of net liabilities associated with the disposal of the aged care business in Australia (classified as discontinued operations) in late January 2024. 

The group's revenue stagnated at RM908 million, primarily due to declines in both inpatient (-3.7 per cent) and outpatient (-5.9 per cent) volumes, although this was partially offset by increased revenue per patient.  

However, core PATMI experienced a significant decline of 43.8 per cent, mainly due to increased tax expenses of RM31.2 million (compared to a tax credit of RM1.7 million in 4Q23), which served as the primary factor influencing the decrease. 

HLIB Research has adjusted its financial year 2024 and 2025 (FY24/FY25) forecast core PATMI forecasts downward by 3.7 per cent and 2.6 per cent. 

It said this was due to its conservative assumption of a higher effective tax rate of 35 per cent compared to 22.8 per cent previously.  

"This adjustment aligns more closely with the realised core effective tax rate in 1Q24.  

"Additionally, we have introduced FY26 forecast projections, anticipating 5.8 per cent year-on-year core PATMI growth," it added. 

The firm has maintained a "hold" call on KPJ and raised its target price marginally to RM1.82.

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