THIS quarter marked a slight sequential deterioration in earnings delivery against our expectations with 60%/40% coming in within/below Kenanga’s forecasts compared to 80%/20% within/below against the preceding quarter.
“The disappointments are from NOVA and PHARMA. The remaining three companies under our coverage, IHH, KPJ, KOTRA met expectations,” said Kenanga Research (Kenanga) in the recent Sector Update report.
Generally, private healthcare players in quarter three of calendar year 2024 (3QCY24) under Kenanga’s coverage including KPJ and IHH registered quarter-on-quarter double-digit bottomline growth underpinned by revenue intensity and rising demand as patients flocked back following the festive season in 2QCY24.
IHH’s nine months of financial year 2024 (9MFY24) results met expectations with core net profit rising 35% year-on-year (YoY)driven by revenue intensity, better yields and a lower tax.
IHH expects its earnings momentum to accelerate, underpinned by revenue intensity and rising demand in 4QCY24.
This would be supported by higher yield services both in Singapore, return of medical tourists in Acibadem, and post-election effect in India.
Separately, KPJ’s 9MFY24 results met expectations driven by higher inpatient throughput (+8%), outpatient (+1%), bed capacity (+7%), surgeries (+5%) and average revenue per inpatient (+6%) and outpatient (+6%).
Citing incremental revenue from higher patient throughput and improving operational efficiency, KPJ highlighted that 9MFY24 losses at its new hospitals under gestation declined by more than 50%.
“We like IHH for its pricing power as the inelastic demand for private healthcare services allows providers such as IHH to pass on the higher cost amidst rising inflation, and its presence in multiple markets, that is Malaysia, Singapore, Türkiye and Greater China,” said Kenanga.
“We also like KPJ for its pricing power as a private healthcare provider and its strong market position locally with the largest network of 29 private hospitals versus 18 of the next largest player, IHH,” said Kenanga.
However, the fundamentals have been priced-in after the recent run-up in its share price. It is optimistic of a total 4,100 beds by the end of CY24. Beyond CY24, it will add more than 1,500 beds bringing total beds to 5,000 over the next five years which we have already factored into our forecasts.
In terms of bottom-line profitability, Kenanga expects earnings to gain momentum moving into FY25 on better operational efficiencies from its cost optimisation effort and overhead absorption rate as a result of a gradual ramp-up in opening new beds.
With incremental revenue from higher patient throughput, Damansara Specialist Hospital 2 (DSH2), KPJ Perlis, KPJ Batu Pahat and KPJ Bandar Dato Onn have already turned earnings before interest, depreciation and amortisation-positive in 9MFY24 except for Miri which Kenanga expects to achieve the same in CY25.
The group is hopeful that with effective marketing and advanced technological equipment, DSH2 is capable of achieving double-digit topline growth in the next few quarters.
It has conducted its first robotic surgery on partial nephrectomy. Presently, DSH2’s bed capacity is 120 beds, to be increased to 205-265 beds in 2025.
Initially, DSH2 is targeting a 50% medical tourism portion in FY24-FY25 by offering cardiac services through collaboration with consultants to bring in patients from the Middle East.
KPJ’s 9MFY24 medical tourism revenue rose 22% YoY to RM168mil and is targeted to reach RM200mil-RM250mil in FY24 where almost 50% of the patients are from Indonesia.
Kenanga reiterates OVERWEIGHT for the sector with IHH as the top pick, which Kenanga still considers a laggard to peers. —Dec 10, 2024
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