AGGRESSIVE EXPANSION: RHB Research expects KPJ to maintain its dominance in in Malaysia given its aggressive expansion plans of two to three hospitals per annum, which would see the company grow its number of beds by 1,180 over the same period.
KUCHING: The local healthcare sector has benefitted from the listing of Integrated Healthcare Holdings Bhd (IHH) last year as well as continuous efforts by KPJ Healthcare Bhd (KPJ) to further expand regionally.
“IHH’s listing in end July 2012 has benefitted the healthcare sector, lifting average peers’ valuations to 26.6 times for calendar year 2013 (CY13) price earnings ratio (PER) currently from 23.5 times CY12 PER at end of July 2012,” highlighted the analytical team at RHB Research Institute Sdn Bhd (RHB Research) in a report yesterday.
“While its share price has performed relatively well –gaining 13 per cent since its listing day (against 3.4 per cent for the FBM KLCI) – KPJ’s share price declined by 5.6 per cent during the same period,” added the research firm.
RHB Research believed this was caused by some switching activities from KPJ to IHH.
Meanwhile, in other developments, IHH’s operation in Malaysia continued to reap higher revenue per in-patient due to its superior brand position, advanced medical capabilities and a higher mix of high-end treatment procedures.
“This is reflected in its higher CY11 revenue per in-patient of approximately RM6,188 compared with RM5,699 for KPJ,” outlined RHB Research.
“Based on our estimates, the 8.6 per cent premium (above KPJ) enjoyed by IHH could increase to approximately 10.1 per cent by 2015, as IHH continues to push for higher revenue intensity by adopting a ‘Hub and Spoke’ business model. By diverting and focusing financial and human capital resources to the more profitable ‘Hub’ hospitals, this model allows IHH to reap better returns from a better mix of tertiary and quartenary healthcare services, which are more readily available at its ‘Hub’ hospitals.”
Nevertheless, RHB Research noted that KPJ was still leading the sector in terms of bed count.
“While the average inpatient bill is typically lower at KPJ, being a community-based hospital, the group remains the largest private hospital operator with a total of 2,772 beds (as compared to 1,474 for IHH), accounting for 19.7 per cent of total market share of private beds (vs. 15.3 per cent for IHH).”
Despite IHH’s plans to add an additional 976 beds in Malaysia over the next three years (three-year cumulative annual growth rate (CAGR) of 12.3 per cent), RHB Research expected KPJ to maintain its dominance in Malaysia given its aggressive expansion plans of two to three hospitals per annum, which would see the company grow its number of beds by 1,180 over the same period.
“Furthermore, on a group-wide basis, KPJ’s pipeline of 1,180 beds represents a three-year CAGR of 12.5 per cent – ahead of 10.9 per cent for IHH,” it added.
Additionally, KPJ recorded a higher inpatient admission of 240,923 in 2011 – compared with 154,823 seen for IHH – in Malaysia mainly due to its wider network of hospitals.
“Moving forward, we expect KPJ’s in-patient admission to increase by a three-year CAGR of 12.5 per cent (against 10.8 per cene for IHH) on the back of 11.6 to 14.1 per cent increase in beds for FY13 to FY15. We believe that KPJ’s higher inpatient growth rates would help offset against its lower revenue-per-inpatient.
“Separately, we note that KPJ would continue to be on the lookout for suitable acquisitions regionally in order to grow its medical tourism business to a targeted revenue contribution of 25 per cent by 2020.
“Such acquisitions, could in our view, help KPJ extend its regional reach and thus, provide a positive boost its profile over the long run,” it concluded.