KPJ: Profits Continued to Rise

Result Update 

For QE31/122018, KPJ's net profit rose 29% q-o-q but dropped 12% y-o-y to RM53 million while revenue rose 5% q-o-q or 4% y-o-y to RM863 million. Group revenue rose 4% y-o-y mainly contributed by the increase in number of patient visits, number of beds and surgeries particularly for KPJ Rawang, KPJ Pasir Gudang and KPJ Bandar Maharani. A total of 14 new consultants from various disciplines joined the Group which contributed to an increase of 7% for its inpatient and outpatient treated at our hospitals. Extended promotions to the neighbouring countries and online promotions and marketing strategies were also factors to the increase in revenue.

Profit before zakat and tax increased 5.4% y-o-y due to lower negative EBITDA reported by the Indonesian operation (RM1.5 million vs RM7.2 million previously) which offset the drop in profit before zakat and tax in the Malaysian operation from RM90.2 million to RM86.1 million as well as higher negative EBITDA reported by the discontinued Australian operation (RM4.7 million vs RM0.5 million previously).


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 48 quarterly results

Financial Position

As at 31/12/2018, KPJ's financial position is deemed satisfactory with current ratio at 1.2 times while gearing ratio was elevated at 1.2 times. IHH has much stronger financial position as at 30/9/2018 with current ratio at 2.5 times while gearing ratio was only 0.5 times.

Valuation

KPJ (closed at RM1.08 yesterday) is now trading at a PE of 26 times (based on last 4 quarters' EPS of 4.16 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 high achieved during the past 5-6 years at RM1.15-1.20, KPJ's uptrend can begin.


Chart: KPJ's monthly chart as at Feb 19, 2019 (Source: Malaysiastock.biz)

Conclusion

Based on improving financial performance and exposure to a growing consumer service sector, KPJ could be a good stock for long-term investment. However, its high valuation and neutral technical outlook mean that the stock is likely to trade sideways around RM1.00-1.10 for a while longer.

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.