KPJ Healthcare: Transformation Plan and Medical Tourism Propel Growth Prospects
Broker: UOB Kay Hian
Date: October 8, 2024
KPJ Healthcare, Malaysia’s largest private hospital operator, is undergoing an impressive transformation driven by a comprehensive restructuring plan and strategic focus on medical tourism. The company’s medium-term growth outlook is supported by a combination of capacity building and its five-year transformation strategy, positioning KPJ as a leader in Malaysia’s healthcare sector.
Transformation Plan: Driving Future Growth
KPJ Healthcare’s transformation strategy focuses on enhancing its operational efficiency and service quality. The company is expanding its hospital network through a hub-and-spoke model, aiming to increase its bed count to 5,000 by 2028 from the current 3,733 beds. This expansion is being complemented by digital initiatives, including a “one patient, one record” system, which consolidates medical records across its hospital network to improve patient care and streamline operations. KPJ’s mobile app is also a key component of this digital push, offering patients easier access to healthcare services.
In addition to digitalization, KPJ is emphasizing brand development and culture activation. The company is working towards creating Centres of Excellence (CoEs) across its hospital network, which will provide specialized services in high-demand areas. This focus on improving patient outcomes and enhancing service offerings is part of KPJ’s broader vision of establishing itself as a high-performance organization.
Expansion in Medical Tourism
One of the standout opportunities for KPJ is the growth in medical tourism, particularly in key markets such as Bangladesh, India, the Middle East, and China. The company is making significant strides in this area, with a focus on expanding its international presence. In the first half of 2024, KPJ’s medical tourism revenue grew by 20% year-on-year, driven by strong demand from international patients.
The Malaysian Healthcare Travel Council (MHTC) has set a target of RM2.4 billion in medical tourism revenue for 2024, a 20% increase from 2023. KPJ is well-positioned to capture a larger share of this growing market, with efforts underway to re-establish representative offices in Indonesia and build a network of agents to drive further growth.
Improving Hospital Operations
KPJ is also making significant progress in improving the operational performance of its hospitals. The company has five hospitals that are currently loss-making, but most of these are expected to break even by the end of the year. KPJ’s hospital in Miri, however, has faced challenges in attracting consultants and is expected to take longer to reach profitability.
In contrast, KPJ is accelerating the gestation of its greenfield hospital projects. The new 60-bed KPJ Kuala Selangor hospital, set to open in Q1 2025, is expected to break even more quickly than usual due to its affluent catchment area and efforts to recruit consultants ahead of its opening. The hospital will also likely benefit from being onboarded to key insurance panels quickly, allowing it to cater to a growing number of cash-paying patients.
Financial Outlook
Despite a strong transformation plan and growth in medical tourism, KPJ Healthcare’s current share price suggests that much of the company’s progress has already been priced in by the market. UOB Kay Hian has maintained its “HOLD” rating on KPJ, with a target price of RM1.90, which represents a downside of 8.2% from its current price of RM2.07.
KPJ’s FY24 earnings are expected to remain stable, with net profit projected at RM288 million, representing an increase of 1.1% year-on-year. The company’s EBITDA margin is forecasted at 24.1%, reflecting steady operational efficiency. However, risks remain, particularly in the form of regulatory changes or delays in hospital openings, which could impact KPJ’s growth trajectory.
Environmental, Social, and Governance (ESG) Initiatives
KPJ has made significant commitments in the area of ESG. The company aims to reduce its greenhouse gas emissions by 25% per patient by 2025, based on its 2021 baseline. Additionally, KPJ plans to source 10% of its energy from renewable sources and reduce water usage by 20% per patient by 2025. On the social front, KPJ is focusing on improving access to healthcare services, including prevention and wellness services, as well as home and aged care services.
The company is also targeting greater gender diversity, with a goal of achieving 30% female representation at the senior management and board levels by 2024. KPJ’s board is currently composed of 50% independent directors, ensuring robust governance practices.
Conclusion
KPJ Healthcare’s ambitious transformation plan, focus on medical tourism, and commitment to ESG initiatives are positioning the company for long-term success. While the current valuation may reflect much of the anticipated growth, KPJ remains an important player in Malaysia’s healthcare sector, with substantial opportunities for further expansion. Investors should watch closely as KPJ continues to execute its strategy and leverage the growing demand for healthcare services both domestically and internationally.
