KUALA LUMPUR (July 14): KPJ Healthcare Bhd (KL:KPJ) is still undervalued against other hospital operators despite its recent rally, Phillip Capital said as it initiated coverage with a ‘buy’ call.
The stock is trading at 34 times the projected earnings for 2027, below the local listed private hospital peer average of 39 times, even as ongoing capacity expansion offers visibility for earnings growth, the research house said in a note. Phillip Capital’s target price for the stock is RM3.80.
“We believe the current valuation does not fully reflect its structural growth prospects, underpinned by its market-leading position, expanding hospital network and favourable industry dynamics,” Phillip Capital said.
Shares of KPJ, which runs 30 hospitals with over 3,900 beds in Malaysia, have climbed nearly 20% so far this year as earnings expanded with higher revenue per patient as well as an increase in the number of patients.
Phillip Capital joins 10 other research houses with ‘buy’ recommendations on the stock. There are also seven houses with ‘hold’ ratings and no ‘sell’ call out of 18 tracked by Bloomberg. The average target price is RM3.56.
KPJ commands about one-third of the market share, larger than Sunway Healthcare Holdings Bhd (KL:SUNMED) with 15% of the total private hospital beds but trading at about 52 times its forward earnings, Phillip Capital noted.
The forecast is for average earnings expansion of 8% annually over the next three years driven by higher patient volume growth and revenue intensity, Phillip Capital said. Net profit could hit RM383 million this year before growing to RM415 million in 2027, according to its estimates.
Growth will be underpinned by Malaysia’s ageing population, rising prevalence of non-communicable diseases and increasing demand for higher-acuity healthcare services, the house added.