Results Update
KPJ has just announced its results for QE30/6/2011 where its net profit increased by 10% q-o-q or 3% y-o-y to RM30 million while its turnover increased by 8% q-o-q or 15% y-o-y to RM471 million. The improvement is due to increased revenue & contribution from its hospitals. From Chart 2 below, we can see that its profit margin has declined in the past 2 quarters, probably due to competition in the healthcare sector where increased costs were not fully passed on to the consumers.
Table: KPJ's last 8 quarterly results
Chart 1: KPJ's last 18 quarterly results
Chart 2: KPJ's profit margin over the last 18 quarterly results
Financial Position
As at 30/6/2011, KPJ's financial position is deemed satisfactory with current ratio at 1.3 times and debts to equity ratio at 0.5 time.
Valuation
KPJ (closed at RM4.57 last Friday) is trading at a PE of 21 times (based on last 4 quarters' EPS of 22 sen). At that PE multiple, KPJ is deemed fully valued. However, KPJ's high PE multiple reflect the valuation of this sector. For example, Khazanah acquired Parkway at a PE of 39 times (here).
Technical Outlook
From the chart below, we can see that KPJ is trading at the crest of a giant wave. If market sentiment turned bearish (and it appears to be doing exactly that presently), KPJ could pull back sharply. It may drop back to the trough of that wave at RM1.80-2.00.
Chart 3: KPJ's monthly chart as at August 1, 2011_plotted on log scale (Source: Tradesignum)
Conclusion
Based on good financial performance & financial position, KPJ is a good stock for long-term investment. However, given the curretn poor market sentiment & the stock's high valuation, I think it is prudent to take some profit on this stock.
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