PP 7767/09/2010(025354)

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

R e su lts N ot e
1 September 2010

MARKET DATELINE
KPJ Healthcare Share Price
Fair Value
:
:
RM3.45
RM4.51
Expecting A Stronger 2H10 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 P/CF Net gearing ROE GDV
(RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (x) (%) (%)
2009a 1,456.4 110.9 21.0 29.5 16.4 - 3.5 11.2 0.4 17.5 3.5
2010f 1,675.5 126.9 24.0 14.1 14.3 22.0 2.8 6.9 0.3 16.7 4.1
2011f 1,861.3 140.5 26.6 10.7 13.0 25.0 2.3 6.2 0.3 15.6 4.6
2012f 2,065.4 157.6 29.8 12.2 11.5 27.0 1.9 5.6 0.2 14.9 5.2
Main Market Listing/Trustee Stock/Syariah Aprroved Stock By The SC *Consensus based on IBES estimates

♦ 1H10 net profit grew 20.8% yoy. KPJ’s 1HFY10 net profit came in at RHBRI Vs. Consensus
Above
RM56.4m (+20.8% yoy), which accounted for 45% and 47% of our and
In Line
consensus full-year estimates respectively. We consider this to be within
Below
expectations as we expect 2HFY10 earnings to be stronger on the back of: 1)
Issued Capital (m shares) 542.7
contribution from 51%-owned Sabah Medical Centre, which KPJ acquired in
Market Cap (RMm) 1,872.4
Jan; and 2) full-contribution from Bukit Mertajam Hospital, in which KPJ
Daily Trading Vol (m shs) 1.1
acquired the remaining 30% equity interest in May. 52wk Price Range (RM) 1.305-3.79

♦ Qoq, revenue grew 9.1, while 2Q10 net profit jumped 7.0%. Higher effective
Major Shareholders:
Johor Corporation
(%)
50.2
tax rate of 24.8% (vs. 24.4% in 1Q10), was offset by stronger contribution
Kumpulan Waqaf An-Nur 8.8
from its associates (+14.0% qoq). Lembaga Tabung Haji 5.1

♦ Declared a second interim gross dividend of 3.25 sen. KPJ declared an FYE Dec FY10 FY11 FY12
interim gross dividend of 3.25 sen (2Q09: 10 sen), which brings its total YTD EPS chg (%) - - -
gross dividend to 6.5 sen. This translates to a net yield of 1.4%. Var to Cons (%) 9.0 6.2 10.4

♦ Positive outlook for the healthcare sector in Malaysia. We believe the PE Band Chart
healthcare sector in Malaysia should continue to grow positively on the back
of: 1) the wealth effect given that the Government has already stated its PER = 13x
PER = 10x
long-term plans under the New Economic Model to raise per capita income PER = 7x
from US$7.6k currently to US$15k in 10 years; 2) rising insurance coverage
as higher income levels will likely promote awareness for better levels of
healthcare; 3) incentives from the Government; and 4) medical tourism,
where Malaysia’s private hospitals providers have been upgrading their
facilities in some of their hospitals for this market. In addition, Malaysia’s
medical tourism industry could also indirectly benefit from Thailand’s political Relative Performance To FBM KLCI
troubles.

♦ Forecasts. No change to our earnings forecasts for now. KPJ Healthcare

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

numbers, which could be due to slower-than-expected economic recovery
and serious disease outbreaks (such as SARS or swine flu) in Malaysia as FBM KLCI
well as slower-than-expected turnaround in loss-making hospitals.

♦ Investment case. We maintain our fair value of RM4.51/share based on

unchanged FY11 PER of 17x, which is based on a 10% discount to regional
peers’ average of 18.5x. Given the scarcity premium after the takeover and
privatisation of Parkway, and KPJ’s leading position and expansion plans in Yap Huey Chiang
Malaysia’s growing healthcare market, we believe the stock’s valuation (603) 92802179
discount to regional peers should continue to narrow. We thus reiterate our yap.huey.chiang@rhb.com.my
Outperform call on the stock.

Please read important disclosures at the end of this report. Page 1 of 3

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 1 September 2010

Table 2. Earnings review

FYE Dec 2009 2010 2010 QoQ YoY 1H 1H YoY Observation/ Comments
(RMm) 2Q 1Q 2Q (%) (%) FY09 FY10 (%)
Revenue 370.8 376.0 410.2 9.1 10.6 709.5 786.3 10.8 Yoy growth largely due to the
increase of in-patients and out-
patients in all of its hospitals across
Malaysia.
EBIT 35.6 37.6 40.4 7.3 13.3 68.3 78.0 14.2
Core EBIT 35.6 37.6 40.4 7.3 13.3 68.3 78.0 14.2
Interest Expense (4.9) (4.2) (4.4) 3.6 (11.1) (10.1) (8.6) (14.8) Total debt as at Jun ’10 was
RM453.0m (vs. Jun ’09: RM368.8m;
end Mar ’10: RM278.5m)

Associates 5.1 4.7 5.3 14.0 4.3 9.3 10.0 7.1 Contribution from Al-Aqar REIT.
Pretax Profit 35.8 38.0 41.3 8.6 15.3 67.5 79.3 17.6
Core PBT 35.8 38.0 41.3 8.6 15.3 67.5 79.3 17.6 Filtered down from EBIT, higher
interest expense and higher
associate profit.
Taxation (9.0) (9.3) (10.2) 10.6 13.2 (16.9) (19.5) 15.6
Minority Interest 1.9 (1.5) (1.9) 24.1 (200.1) (3.9) (3.4) (11.9)
Net profit 24.9 27.2 29.2 7.0 17.3 46.7 56.4 20.8 Filtered down from PBT.
EPS 12.0 5.2 5.5 6.7 (53.8) 41.3 49.0 18.6 Largely due to share split.
DPS 10.0 0.0 3.3 n.m. (67.5) 15.2 8.0 (47.4) 2QFY10: second interim 3.3 sen (less
25% tax) gross dividend adjusted for
share split and bonus issue was
declared.
Margins (%)
EBIT Margin 9.6 10.0 9.8 9.6 9.9
Pretax Margin 9.7 10.1 10.1 9.5 10.1
Net Margin 6.7 7.2 7.1 6.6 7.2
Effective Tax 25.3 24.4 24.8 25.0 24.6 Effective tax rate lower than
Rate statutory tax rate due to availability
of unutilised losses for offset against
current period profit of certain
subsidiaries.
Source data: Company data, RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

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

Turnover 1,456.4 1,675.5 1,861.3 2,065.4 No. of hospitals 21 23 25

Turnover growth (%) 14.9 15.0 11.1 11.0 No of in-patients 237,943 259,358 282,700
No. of out-patients 2,275,469 2,411,998 2,556,717
Gross Profit 419.1 485.9 539.8 599.0 EV/bed (in RM) 126,723 113,145 102,859
EBITDA/bed (in RM) 91,846 91,330 90,891
EBITDA 188.3 217.0 241.7 264.5 Source: Company data, RHBRI estimates
EBITDA margin (%) 12.9 13.0 13.0 12.8

Depreciation (46.5) (48.6) (55.1) (52.9)

Net Interest (16.7) (14.1) (13.6) (13.8)
Associates 18.9 28.8 30.7 30.7

Pretax Profit 143.9 183.1 203.7 228.5

Tax (29.2) (45.8) (50.9) (57.1)
Minorities (3.9) (10.5) (12.3) (13.8)
Net Profit 110.9 126.9 140.5 157.6

Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

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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
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Industry/Sector Ratings

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