Stock Name: KPJ
Company Name: KPJ HEALTHCARE BHD
Research House: RHB
KPJ Healthcare Bhd
(May 18, RM4.22)
Maintain outperform at RM4.17 with fair value of RM4.94: According to a recent news report, Australia's Ramsay Health Care is scouting for Malaysian companies to jointly develop its Malaysia and Indonesia healthcare presence.
Ramsay Health Care is Australia's largest private hospital operator, with over 66 hospitals and day surgery units and a 30% share of the Australian healthcare market. It has a market capitalisation of over A$3.6 billion (RM11.62 billion) and it is trading at a FY11/12 price-earnings ratio (PER) of 17.3 times and 15.5 times.
The group also has exposure in the UK, Europe as well as Indonesia and is keen to expand into Malaysia's growing healthcare market. The group believes that it is uniquely positioned, given its three Indonesian hospitals, to help develop healthcare tourism here by bringing Indonesian patients to Malaysian hospitals.
We checked with KPJ and TMC Life Sciences Bhd and both said they have not received any expressions of interest from Ramsay. But they agree that the potential entry of Ramsay into the Malaysian healthcare market would enhance the competition among the healthcare players here. In addition, it would help Malaysia grow its medical tourism industry.
In 2010, Malaysia received 400,000 health tourists who generated over RM380 million in revenue. The majority of patients came from Indonesia (approximately 30%), followed by China and the Middle East. Other healthcare players in Malaysia include Sime Darby Holdings Bhd, Pantai Holdings Bhd (under Parkway Holdings Ltd) and Columbia Asia Sdn Bhd (30%-owned by the Employees Provident Fund).
We make no change to our earnings forecasts for KPJ which assume no change to our earnings forecasts, assuming: (i) the opening of at least two new hospitals per year; (ii) 6% to 9% out-patient and in-patient growth per year; and (iii) three-year earnings per share compound annual growth rate of 14.6%.
The risks to KPJ's earnings include lower than expected patient numbers, which could be due to slower than expected economic recovery and serious disease outbreaks (such as SARS or swine flu) in Malaysia as well as slower than expected turnaround in loss-making hospitals.
We believe more mergers and acquisitions in the sector would support our view that there is significant growth potential for the healthcare sector in the region. Given KPJ's leading position and expansion plans in Malaysia's growing healthcare market, we believe the stock's valuation discount to regional peers should continue to narrow.
As such, we maintain our fair value for KPJ at RM4.94, based on an unchanged FY11 PER of 19 times (a 10% discount to regional peers' average of 21.5 times to reflect the stock's relatively lower market cap). We reiterate our 'outperform' call on the stock. ' RHB Research, May 18
This article appeared in The Edge Financial Daily, May 19, 2011.
Company Name: KPJ HEALTHCARE BHD
Research House: RHB
KPJ Healthcare Bhd
(May 18, RM4.22)
Maintain outperform at RM4.17 with fair value of RM4.94: According to a recent news report, Australia's Ramsay Health Care is scouting for Malaysian companies to jointly develop its Malaysia and Indonesia healthcare presence.
Ramsay Health Care is Australia's largest private hospital operator, with over 66 hospitals and day surgery units and a 30% share of the Australian healthcare market. It has a market capitalisation of over A$3.6 billion (RM11.62 billion) and it is trading at a FY11/12 price-earnings ratio (PER) of 17.3 times and 15.5 times.
The group also has exposure in the UK, Europe as well as Indonesia and is keen to expand into Malaysia's growing healthcare market. The group believes that it is uniquely positioned, given its three Indonesian hospitals, to help develop healthcare tourism here by bringing Indonesian patients to Malaysian hospitals.
We checked with KPJ and TMC Life Sciences Bhd and both said they have not received any expressions of interest from Ramsay. But they agree that the potential entry of Ramsay into the Malaysian healthcare market would enhance the competition among the healthcare players here. In addition, it would help Malaysia grow its medical tourism industry.
In 2010, Malaysia received 400,000 health tourists who generated over RM380 million in revenue. The majority of patients came from Indonesia (approximately 30%), followed by China and the Middle East. Other healthcare players in Malaysia include Sime Darby Holdings Bhd, Pantai Holdings Bhd (under Parkway Holdings Ltd) and Columbia Asia Sdn Bhd (30%-owned by the Employees Provident Fund).
We make no change to our earnings forecasts for KPJ which assume no change to our earnings forecasts, assuming: (i) the opening of at least two new hospitals per year; (ii) 6% to 9% out-patient and in-patient growth per year; and (iii) three-year earnings per share compound annual growth rate of 14.6%.
The risks to KPJ's earnings include lower than expected patient numbers, which could be due to slower than expected economic recovery and serious disease outbreaks (such as SARS or swine flu) in Malaysia as well as slower than expected turnaround in loss-making hospitals.
We believe more mergers and acquisitions in the sector would support our view that there is significant growth potential for the healthcare sector in the region. Given KPJ's leading position and expansion plans in Malaysia's growing healthcare market, we believe the stock's valuation discount to regional peers should continue to narrow.
As such, we maintain our fair value for KPJ at RM4.94, based on an unchanged FY11 PER of 19 times (a 10% discount to regional peers' average of 21.5 times to reflect the stock's relatively lower market cap). We reiterate our 'outperform' call on the stock. ' RHB Research, May 18
This article appeared in The Edge Financial Daily, May 19, 2011.
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