KUCHING: KPJ Healthcare Bhd (KPJ), on its plans to transform three of its existing hospitals into reference centres for oncology while leveraging on its stake in a Thai hospital, is focusing on the lucrative medical tourism industry as a pathway to sustainable long-term growth.
The healthcare group has reaffirmed that it would continue with its expansion plans of opening at least two new hospitals per annum, which had thus far helped the company maintain its dominance in the local healthcare sector.
David Chong of RHB Research Institute Sdn Bhd (RHB Research) noted that in order to grow the medical tourism business further, the hospitals would be upgraded to include new facilities in oncology and radiotherapy treatment, while an additional nuclear medicine facility would be introduced at the KPJ Johor Specialist hospital by the first quarter of 2013 (1Q13).
“The growing awareness of healthcare standards and an overloaded public healthcare system are expected to help sustain healthy demand growth of eight to 10 per cent per annum for the local private healthcare industry.
“In total, the above expansion plans are expected to lift KPJ’s capacity to 2,871 beds (from 2,716 currently) by end-2013 and thus, help bring down its occupancy rate to a more healthy level of 70 per cent (from 80 per cent currently).
“We have assumed annual capex (capital expenditure) of RM200 million in our FY13-14 (financial years 2013 to 2014) earnings forecasts.
“In our view, the above pipeline of new hospitals coupled with KPJ’s strong execution track record means that we remain comfortable with the group’s ability to continue delivering sustainable earnings growth and maintain its position as Malaysia’s largest private hospital operator,” he said.
Chong added that KPJ had set an internal target of growing its medical tourism business to a targeted revenue contribution of 25 per cent by 2020 (from less than 10 per cent currently).
Noting that the largest contributors to the group’s medical tourism business were the KPJ Johor Specialist and KPJ Ampang Puteri Specialist hospitals, he believed the key reason for this was the hospitals’ proximity to foreign communities, apart from the availability of more specialised medical treatments.
Meanwhile, the construction of a new flagship 390-bed hospital in Bandar Dato’ Onn was slated to begin in early-2014, in order to meet the targeted opening by end-2014, he said.
Upon completion, the hospital would house six centres of excellences in the field of oncology, women and children, cosmetics and reconstruction, orthopedic, cardiology and geriatrics.
The services would be priced competitively in order to tap into the more price-sensitive foreign community from Singapore, Chong said.
The group had also mentioned that its acquisition of a 23.4 per cent stake in the 263-bed Vejthani Hospital in Thailand was a strategic move to gain entry into the Thai healthcare market.
“Given Vejthani’s strong presence in the medical tourism segment, management intends to extract value from this acquisition through mutual patient referrals with the hospital, while over the longer-term, attempt to replicate Vejthani’s successful medical tourism strategy in Malaysia.
“Moving forward, we expect KPJ to deliver a stronger set of results in 2013 with the additional beds arising from the scheduled opening of two new hospitals as well as the new Sabah Medical Centre.
“We believe the stock is still attractive given the defensive qualities of the healthcare industry as well as its cheaper valuations of 21.4 times 2013 price earnings ratio versus 27 times for regional peers,” he opined.
As such, Chong was positive on the stock with an unchanged fair value of RM6.45 per share and forecast a net profit to RM178.3 million for the year, representing a 28 per cent boost when compared with last year’s reported bottom line of RM139.1 million.