KPJ Healthcare downgraded as valuations catch up: Analyst
In a note to clients, analyst Walter Aw said KPJ Healthcare's stock, which has surged 26.5 per cent year-to-date, is now trading close to two standard deviations above its five-year forward average valuation.
"At current levels, we believe valuations have caught up with fundamentals. The stock is now trading at a premium compared to its larger peer IHH Healthcare Bhd, based on projected 2026 earnings," he said.
Despite the downgrade, the firm raised its sum-of-parts-based target price for KPJ Healthcare to RM3 from RM2.80 previously, reflecting a higher valuation multiple of 12.3 times for the group's hospital operations.
The group's first quarter core net profit rose 23.6 per cent year-on-year to RM63.3 million, in line with consensus estimates. Revenue climbed seven per cent to RM971.8 million on increased bed capacity and higher patient volume.
However, the results were weaker on a quarter-on-quarter basis, with core net profit down 48.2 per cent from the fourth quarter of 2024, due to seasonal trends.
Aw said earnings momentum is expected to pick up in subsequent quarters, supported by bed capacity expansion, improved cost controls and narrowing losses from five newer hospitals that are still in their gestation phase.
CIMB Securities projects KPJ Heatlcare's core net profit to grow 12.9 per cent year-on-year in 2025, with revenue forecasted to rise 9.1 per cent to RM4.28 billion.
The group's bottom line is expected to benefit from ongoing cost optimisation, better operating leverage, and a strategy to attract more patients by building centres of excellence and hiring more specialists.
Despite these growth levers, the firm warned of downside risks including lower-than-expected patient traffic, slower hospital ramp-ups and thinner margins.
KPJ Healthcare was last traded at RM2.72, giving it a market capitalisation of RM12.31 billion.
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