AFFIN Hwang Capital Research has maintained its sell rating on KPJ Healthcare Bhd with an unchanged sum-of-the-parts valuation (SOTP)-derived price target of 80 sen as the market has yet to fully price in the negative earnings impact from Covid-19 and movement control order (MCO).
“Looking ahead, we expect disappointments in its quarterly earnings and consensus earnings cut to de-rate KPJ’s share price.
“At 26x 2020E price-to-earnings (PER), the valuation looks stretched to us, considering the difficult market conditions and its weak earnings outlook. This note marks a transfer of coverage,” the research house said in a note on April 21.
It expected KPJ’s 2020 earnings to fall by 36% yoy. “We had in March 2020 slashed our 2020-22 earnings assumptions by 24%-30% in anticipation of a sharp decline in KPJ’s revenue due to the Covid-19 pandemic and MCO.
“Broadly, we expect KPJ to see very weak earnings in 2Q20 and slow recovery in 3Q20, leading to a 36% yoy contraction in its 2020E core net profit,” it said.
However, the earnings recovery may be weighed down by a weak revenue per patient
(due to challenging domestic economic conditions), high upfront costs (depreciation, personnel costs) for new hospitals and high staff costs.
Moving into 2021E, Affin Hwang expects KPJ’s earnings to recover by 6% from the 2020E low, supported by a normalisation in patient arrivals.
KPJ’s share price opened 2.25% lower at 87 sen before the midday break, giving it a market capitalisation of RM3.86 bil. – April 21, 2020
