PP 7767/09/2010(025354)

1 March 2010
Malaysia Corporate Highlights
RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
1 March 2010
MARKET DATELINE

KPJ Healthcare Share Price

Fair Value
:
:
RM2.41
RM3.20
On Track To Meet Its 2012 Target 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 Gr. Div.
(RMm) (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) Yld. (%)
2009a 1446.4 98.8 18.7 15.3 12.3 - 2.4 0.4 15.9 5.2
2010f 1602.4 115.4 21.9 16.9 10.5 20.0 2.0 0.4 15.7 6.1
2011f 1778.3 122.2 23.2 5.9 9.9 22.0 1.6 0.4 14.2 7.0
2012f 1972.1 144.7 27.4 18.4 8.4 - 1.4 0.4 14.4 7.8
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus based on IBES Estimates

RHBRI Vs. Consensus

♦ In line. KPJ’s FY12/09 core net profit of RM98.7m (+22.0%) came in within
Above
our but above consensus expectations, accounting for 101% and 107% of In Line
our and consensus full-year forecasts respectively. KPJ recorded a gain on Below
disposal of hospitals to Al-Aqar REIT totaling RM3.1m in FY09 and RM4.7m in
Issued Capital (m shares) 527.6
FY08. KPJ declared second interim gross DPS of 4 sen (less 25% tax), Market Cap(RMm) 1271.6
bringing full-year gross DPS to 8 sen (after adjusting for share split and Daily Trading Vol (m shs) 1.0
bonus issue) or net payout of 32%. We expect KPJ to announce final 52wk Price Range (RM) 1.01-2.80
dividend or dividend-in-specie in a separate announcement, which would Major Shareholders: (%)
bring total net payout to 12 sen (from 15.2 sen in FY08). Johor Corporation 50.2
Kumpulan Waqaf An-Nur 8.8
Lembaga Tabung Haji 5.1
♦ Yoy, net profit jumped 22.0% albeit only a 14.1% growth in turnover due
mainly to improvements in EBIT margin by +0.8%-pt from higher utilisation FYE Dec FY10 FY11 FY12
of hospitals. EPS chg (%) (1.8) (1.2) -
Var to Cons (%) 9.4 5.3 -

♦ RM2bn revenue target by 2012 achievable. We believe KPJ’s revenue

PE Band Chart
target of RM2bn by 2012 is achievable through the opening of 2 new
hospitals p.a. as well as expansion of its existing hospitals. In Jan 2010, KPJ
already acquired a 51% stake in the operations of Sabah Medical Centre. We PER = 13x
PER = 10x
believe that KPJ is still on the lookout to acquire another established hospital PER = 7x
in 2010, given that it has yet to meet 2010’s target. For 2011, KPJ will be
establishing two new greenfield hospitals in Muar, Johor and Klang, Selangor.
Meanwhile, the greenfield Tanjung Lumpur, Kuantan hospital would likely be
opened in 2012. KPJ plans to expand/is currently expanding its Tawakal,
Ampang Puteri and Damansara hospitals. Relative Performance To FBM KLCI

♦ Forecasts. We have tweaked down our earnings forecasts by 1.2-1.8% after

FY09’s results. We introduced our earnings forecast for FY12 with the
following assumptions: 1) opening of 2 new hospitals; and 2) revenue per KPJ Healthcare
patient increase of 2%.

♦ Risk. The risks to KPJ’s earnings include lower-than-expected patient FBM KLCI

numbers, which could be due to slower-than-expected economic recovery

and serious disease outbreaks (such as SARS or swine flu) in Malaysia as
well as slower-than-expected turnaround in loss-making hospitals.

♦ Investment case. We maintain our fair value of RM3.20 based on

unchanged 14.5x FY12/10 EPS, in line with our 14.5x target PE for the
consumer sector. We like KPJ: 1) as valuations remain lower than its regional
Hoe Lee Leng
peers average PER of 17x; and 2) on the back of the rising affluence and (603) 92802239
higher take-up of insurance policies in Malaysia. Maintain Outperform. hoe.lee.leng@rhb.com.my

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Table 2: Earnings Review

FYE Dec 2008 2009 2009 %QoQ % YoY 2008 2009 % YoY Observation/ Comments
(RMm) 4Q 3Q 4Q Chg Chg FY FY Chg
Revenue 322.5 361.5 375.4 3.8 16.4 1267.3 1446.4 14.1 Increase in in-patients and out-
patients and contribution from the
acquisition of Kluang Utama
Specialist Centre (in Dec 08).
EBIT 23.3 36.3 33.9 (6.8) 45.7 113.9 138.5 21.6
Core EBIT 23.3 33.2 33.9 1.9 45.7 109.1 135.4 24.1
EI 0.0 3.1 0.0 - - 4.7 3.1 (34.6) Gain on disposal of hospitals to Al-
Aqar REIT.
Interest Expense (6.1) (4.4) (2.1) (51.4) (65.2) (18.5) (16.6) (10.4) Lower borrowing cost yoy due to low
interest rate environment.

Associates 6.5 5.0 5.7 12.6 (12.9) 18.7 20.1 7.2 Contribution from Al-Aqar REIT.
Pretax Profit 23.7 37.0 37.5 1.1 58.2 114.1 142.0 24.5
Core PBT 23.7 33.9 37.5 10.4 58.2 109.3 138.9 27.0 Filtered down from EBIT, lower
interest expense and higher
associate profit.
Taxation (2.2) (7.1) (10.2) 45.1 363.0 (24.7) (34.2) 38.1
Minority Interest (1.0) 3.2 (1.0) >(100) 4.7 (5.7) 6.0 >(100)
Net profit 22.5 26.8 28.2 5.4 25.8 85.6 101.8 18.8
Core-net profit 22.5 23.7 28.2 19.2 25.8 80.9 98.8 22.0 Filtered down from PBT.
EPS 10.9 12.9 13.6 5.5 25.1 41.3 49.0 18.6
DPS 12.4 0.0 4.0 - (67.7) 15.2 8.0 (47.4) 4QFY08: Dividend-in-specie of 12.4
sen was declared.
4QFY09: Second interim 4 sen (less
25% tax) gross dividend adjusted for
share split and bonus issue was
declared.

Core EBIT Margin (%) 7.2 9.2 9.0 (0.2) 1.8 8.6 9.4 0.7 Improvement in margins due to
higher utilisation of hospitals.
Core Pretax Margin 7.3 9.4 10.0 0.6 2.6 8.6 9.6 1.0
(%)
Core Net Margin (%) 7.0 6.6 7.5 1.0 0.6 6.4 6.8 0.4
Effective Tax Rate 9.3 20.8 27.4 6.5 18.0 22.6 24.6 2.0 Effective tax rate lower than
(%) statutory tax rate due to availability
of unutilised losses for offset against
current period profit of certain
subsidiaries.
Note: Source: Company, RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

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

Turnover 1446.4 1602.4 1778.3 1972.1 No. of hospitals 21 23 25

Turnover growth (%) 14.1 10.8 11.0 10.9 No of in-patients 237,512 258,888 282,188
No. of out-patients 2,238,989 2,373,328 2,515,728
Cost of Sales (1025.9) (1137.7) (1262.6) (1400.2)
Gross Profit 420.4 464.7 515.7 571.9

EBITDA 185.0 207.0 233.2 269.6

EBITDA margin (%) 12.8 12.9 13.1 13.7

Depreciation (46.5) (49.5) (59.7) (59.0)

Net Interest (16.6) (16.2) (18.6) (19.2)
Associates 20.1 26.9 26.9 26.9

Pretax Profit 142.0 168.3 181.7 218.3

Tax (34.2) (42.1) (47.2) (58.9)
Minorities (5.9) (10.8) (12.2) (14.7)
Net Profit 98.8 115.4 122.2 144.7
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

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
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

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

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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

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