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KPJ Healthcare still 'healthy' despite higher tax, MI charges

KPJHealthcare Bhd (KPJ Healthcare) is still an excellent choice for long-term investment and portfolio balancing that offers growth potential in a defensive sector, despite registering lower-than-expe

23-08-2011

KUCHING: KPJHealthcare Bhd (KPJ Healthcare) is still an excellent choice for long-term investment and portfolio balancing that offers growth potential in a defensive sector, despite registering lower-than-expected earnings for the first financial half of this year (1HFY11).

For the period under review, the private hospital provider reported a net profit of RM57.4 million, that accounted for about 42.4 per cent of the consensus forecast.

According to OSK Research Sdn Bhd (OSK Research), the underperformance was largely due to higher-than-expected effective tax rate and minority interest (MI) charges.

"KPJ’s revenue grew 15.6 per cent year-on-year (y-o-y) but PBT (profit before tax) was only up by 9.4 per cent y-o-y due to lower margins given that hospitals that contributed to higher revenue growth were mostly new hospitals," noted OSK Research.

At present, KPJ is the largest private hospital provider in the country with a network of 20 hospitals nationwide with new hospitals such as Penang Specialist, Tawakkal Specialist, Kuching Specialist and Perdana Specialist.

"These new centres’ margins had yet to reach the group’s normal margin line," added OSK Research.

The research house also observed that for the 1HFY11, KPJ Healthcare’s new hospital in Jakarta was still in the red with losses before tax (LBT) of RM4.39 million which according to OSK Research, was within expectations as it was stillearly in its gestation period.

Subsequently, due to the lower margins, higher effective tax rate coupled with higher MI charges from Sabah Medical Centre, earnings for KPJ Healthcare’s 1HFY11 was only up marginally by 2.2 per cent y-o-y, the research firm reported.

As such, after imputing after effective tax rate of 23 per cent from 22 per cent and higher MI charges assumption, OSK Research had trimmed down its FY11 and FY12 net profit forecast for KPJ Healthcare by 4.4 per cent and 3.2 per cent, respectively.

To conclude, OSKResearch pegged a lower fair value of RM5.21 from RM5.37 based on 19.6 time price earnings ratio on FY12 earnings per share. Notably, KPJ Healthcare had declared a second interim dividend of 2.5 sen.







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