KPJ Healthcare Berhad

A leader in Malaysia's challenging healthcare services industry

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The Malaysian Insider - Jan 30 — KPJ Healthcare Bhd, Malaysia’s sole listed private healthcare company, has the highest dividend yield among its regional peers.


KUALA LUMPUR, Jan 30 — KPJ Healthcare Bhd, Malaysia’s sole listed private healthcare company, has the highest dividend yield among its regional peers, with a steady dividend payout of 50 per cent of net earnings over the last few years. That, together with its earnings resilience made it OSK Research’s top pick for conservative and long term investors. OSK said this in its report on the regional healthcare sector.

“KPJ is the largest private healthcare provider in Malaysia with a strong nationwide hospital network catering for different consumer segments. Its exposure to medical tourism is also limited, accounting for less than 2 per cent of its topline. This will shield it from any potential slump in the medical tourism sector,” says OSK.
The only blip on the screen is KPJ’s share liquidity problem which OSK says might cause price volatility. OSK has a buy rating on KPJ with a target price of RM4.48.

For medium risk investors, OSK likes Parkway Holdings Ltd for its balance of medical tourism and large hospital network across several countries. “Although Parkway’s revenue growth tends to be sensitive to economic conditions as seen over the last two crisis, we believe earnings will be more resilient now given that it has expanded and diversified its business across several countries with the notable aquisition of the Pantai Medical Group a few years ago,” says OSK.

“Since its acquisition, Pantai has been the major growth driver for Parkway and we expect it to remain so. Our main concern would be the possibility of the economic slowdown dragging on longer than expected which might result in lower demand particularly for its hospitals in Singapore which focus on premium services.”
OSK has rated Parkway a buy with a target price of S$1.45 (RM3.47).

OSK’s top pick for high risk investors is Bumrungrad Hospital Plc in Thailand due to its high exposure to medical tourism — 50 per cent of its revenue is derived from foreign patients making it the biggest beneficiary of a boom in medical tourism. “The main risk to our recommendation would be protracted political turmoil in Thailand which would deter medical tourists from coming to Bangkok given that it focuses on a single hospital in Bangkok,” says OSK.
OSK has no rating for Bumrungrad.

OSK also notes that Sime Darby’s healthcare division has been growing at an average of 8 per cent year-on-year and reported RM250 million in revenue and RM20 million in profit for FY08.
The opening of Petronas owned Prince Court hospital in Kuala Lumpur will provide added competition as it offers value for money says OSK. Given that doctor’s charges are regulated by the ministry of health, the main price differential lies in hospital charges such as room rates and nursing fees. Despite Prince Court’s premium image, OSK finds that some of Prince Court’s room categories are actually priced cheaper than competitors like Damansara Specialist Hospital and Pantai Medical Centre. For example, a junior suite costs RM600 at Prince Court, RM650 at Damansara Specialist and RM788 at Pantai Medical.

“It offers service comparable with regional peers such as Mount Elizabeth Hospital in Singapore and Bangkok’s Bumrungrad but at cheaper prices,” says OSK. “We believe its goal to be among the best in Asia is achievable given that it has a competitive advantage.” Foreigners currently make up 30 per cent of Prince Court’s patients.

OSK remains optimistic on the outlook for the medical sector despite an expected decline in growth due to the economic slowdown. This is due to the fact that Malaysia has a price advantage over Singapore and Thailand and the latter is also experiencing political turmoil which might further deter medical tourists.
The Association of Private Hospitals Malaysia (APHM) has forecast medical tourists arrivals to grow by 25 per cent in 2009 to about 625,000 compared with 501,000 last year. It had previously projected a growth rate of 30 per cent.