KPJ: Earnings Growth Continued

Result Update 

For QE30/9/2019, KPJ's net profit rose 11% q-o-q or 12% y-o-y to RM46 million while revenue rose 7% q-o-q or 10% y-o-y to RM906 million. Group revenue rose 10% revenue due to the increase in number of patient visits, radiology cases and surgeries especially for KPJ Johor, KPJ Selangor and KPJ Rawang. The new addition to the Group’s group of hospitals, KPJ Batu Pahat, which commenced its operation on 18 September 2019, also contributed to the improved revenue of the period. Increased activities within the support companies also contributed to the revenue growth.

Profit before tax recorded 16% increase to RM69.3 million during this quarter from RM59.9 million in the same quarter in 2018 led by the increase in revenue by 10%. Despite the fact that the increase in profit before tax has been set-off by the MFRS 16 impact recognized during the quarter especially on depreciation and finance costs amounting to RM9.7 million and RM14.0 million respectively, the Group managed to set higher profit before tax margin with 7.9% as compared to last year’s 7.5%. This was due to cost optimization and initiatives from the hospitals as well as better performance by support companies.


Table: KPJ's last 8 quarterly results


Graph: KPJ's last 47 quarterly results

Financial Position

As at 30/9/2019, KPJ's financial position is deemed adequate with current ratio at 1.15 times while gearing ratio was elevated at 2.03 times.

Valuation

KPJ (closed at RM0.905 yesterday) is now trading at a PE of 21 times (based on last 4 quarters' EPS of 4.31 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 Nov 28, 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 RM0.90-1.10 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.