Slight miss in 1Q22 on high tax rate
? 1Q22 core EPS (+70% yoy, +10% qoq) was a slight miss on high tax rate.
? We expect FY22F core EPS to grow 1.3x yoy off a low base, led by higher
patient visitations, associate earnings and tax normalisation.
? Reiterate Hold with a lower TP of RM0.99 (33x CY23F P/E).
1Q22 earnings slightly missed estimates on high effective tax rate
KPJ’s 1Q22 EBITDA rose 19.2% yoy due to higher revenue and margin. Core EPS
surged by a larger 69.6% yoy, further aided by improved associate earnings and
magnified by leverage effects. Qoq, EBITDA climbed 11.0% as margin accretion more
than offset lower revenue, leading to core EPS posting decent growth of 10.4%. 1Q22
EBITDA/core EPS formed 24%/17% of our FY22F forecasts (24%/16% of Bloomberg
consensus). While we see better earnings in the coming quarters, we deem this a slight
miss as effective tax rate is tracking higher vs. our forecast. 1Q22 DPS of 0.25 sen (49%
payout) is also tracking below our projection (1.5 sen for FY22F).
Malaysia revenue dragged by Omicron; revenue intensity picked up
1Q22 Malaysia revenue continued to grow, albeit at a milder pace of 7.5% yoy. Total
patient visitations rose 13% yoy as 1Q21 was hit by the second movement control order
(MCO 2.0), during which patients deferred elective and non-urgent treatments. This led to
its bed occupancy rate (BOR) improving to 48% in 1Q22 from 35% in 1Q21. Malaysia
revenue dipped 5.8% qoq as the number of surgeries softened owing to the surge in
Covid-19 cases (Omicron variant) despite higher revenue intensity qoq (likely due to
upward fee adjustments, in our view). Nonetheless, normalised Malaysia PAT was up
c.37% qoq, thanks to cost efficiencies, partly offset by incremental depreciation and
interest cost from its upcoming hospital, Damansara Specialist Hospital 2. Meanwhile,
1Q22 overseas LBT narrowed 16.7% yoy (-37.8% qoq), with Indonesia’s patient volumes
up a strong 90% and Jeta Gardens’s occupancy rate staying at a decent 86%.
Earnings revisions and outlook
After the 1Q22 results and updating for KPJ’s FY21 annual report, we cut FY22-24F core
EPS by 8.0-10.5%, mainly on account of higher opex, while we take the opportunity to
assume a more conservative effective tax rate of 27% for FY22-24F. We now see FY22F
core EPS growing 1.3x yoy, then rising 6.8%/2.4% yoy in FY23F/24F, driven by i)
recovery in patient visitations and associate earnings (gradual lifting of Covid-19
movement/travel restrictions), ii) improved revenue intensity (price revisions, increasing
case complexity), and iii) normalisation of effective tax rate (FY22F).
Reiterate Hold with lower TP of RM0.99 (33x CY23F P/E)
Post our earnings cut, we lower our TP to RM0.99, based on an unchanged CY23F P/E
of 33x (i.e. its 10-year mean). Reiterate Hold as we believe the near-term earnings
recovery has been priced in. Key upside/downside risks: faster-/slower-than-expected
earnings recovery from Covid-19 and turnaround for new hospitals under gestation.