By Xavier Kong
THE losses from Australia-based aged-care operation Jeta Gardens will be a drag on KPJ Healthcare Bhd’s earnings moving forward, according to Maybank Investment Bank Research.
As such, the research house is reducing its earnings forecast of about 4% per annum until the group’s 2021 financial year.
Maybank IB analyst Lee Yen Ling. who maintained a buy recommendation on the counter, noted that this is also the cause for the reduction in target price to RM1.05 from a previous RM1.08.
KPJ has put on sale its 57% stake in the operating company of Jeta Gardens in 2017, but has faced difficulty in the proposed disposal due to increased competition among aged-care providers in Australia.
This has led to KPJ temporarily shelving the disposal and instead work on improving the operation, leading to a reclassification as a continuing operation from a discontinued operation from 4Q19.
“Jeta Gardens’ net loss averaged about RM2 mil per quarter for KPJ’s portion, and the net book value was RM11 mil as at end-FY18. In our model, we have assumed for a net loss of RM8 mil per annum for Jeta Gardens in FY19 to FY21E,” said Lee.
On the issue of proposed price controls on single-source drugs, he said it may not materialise at all, potentially because prices in Malaysia are already fair compared to the benchmarked countries. Private hospitals may instead be required to publish their prices.
“The measure would be similar to that of Singapore or Thailand, and will not have any adverse impact on the private hospitals,” Lee added.
The research house expected KPJ’s fourth quarter ended Dec 31, 2019 to be better both quarter-on-quarter and year-on-year.
It attributed this to seven maturing hospitals which may contribute higher earnings to offset the losses from the two greenfield hospitals opened between last September and December.
Gross margins also tend to spike in the fourth quarter on lower costs, but Jeta Gardens will be a drag on the quarter’s earnings.
At 11.20am, KPJ shares were last done at 98.5 sen, up 3.5 sen, with 6.09 million shares changing hands. – Jan 22, 2020
