KPJ: Tentative Signs of Earning Expansion

Result Update 

For QE30/6/2018, KPJ's net profit dropped 0.3% q-o-q but rose 32% y-o-y to RM42 million while revenue dropped 2.6% q-o-q but rose 1.1% y-o-y to RM801 million. Revenue rose y-o-y mainly contributed by the increase in number of patient episodes and complex cases per inpatient particularly for KPJ Rawang, KPJ Bandar Maharani and KPJ Pasir Gudang. Besides, increased activities at the support companies also contributed to the revenue growth. In current quarter, KPJ Perlis has commenced its operation on 17 May 2018.

Profit before zakat and tax has increased to RM62.0 million during this quarter, an increase of 26% from RM49.1 million in the same quarter in 2017, contributed by the cost optimisation initiatives by the hospitals mainly the new hospitals which were under gestation period.


Table: KPJ's last 8 quarterly results

KPJ's quarterly revenue has been on a steady uptrend for the past 10 years. Its earning has been flattish in the past 5-6 years due to expansion program which led to lower profit margin as higher administrative expenses were not fully absorbed by revenue from the newly hospitals opened. However profits & profit margins seem to be curving upward. If these trends persist, we may see a breakout in profits next few quarters.


Graph: KPJ's last 46 quarterly results

Valuation

KPJ (closed at RM1.14 yesterday) is now trading at a PE of 23.4 times (based on last 4 quarters' EPS of 4.87 sen). At this PER, KPJ is fully valued.

Technical Outlook

KPJ has been moving sideways for the past 5-6 years. If it can break above the red band between RM1.15-1.20, KPJ's uptrend will continue.


Chart 1: KPJ's monthly chart as at Aug 16, 2018 (Source: ShareInvestor.com)


Chart 2: KPJ's weekly chart as at Aug 16, 2018 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance and exposure to a growing consumer service sector, KPJ could be a good stock for long-term investment.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.