Less affected by turmoil because of nature of business
KPJ Healthcare Bhd is one of the stocks that should be able to sidle through the current global economic slowdown, given that healthcare services are deemed a necessity. Analysts, in general, are of the view that it should be less affected by the poor economic outlook.
KPJ reported net profit growth of 90.1%, 40.8% and 14.3% respectively for the first three quarters of FY2008, mainly due to higher patient admissions and contributions from newly acquired hospitals. On a cumulative basis, its net profit for the first nine months was 42.4% higher at RM63.19 million.
Some of the group's previously loss-making hospitals — Perdana Specialist Hospital in Kelantan, Kuching Specialist Hospital and Taiping Medical Centre — turned around or broke even in 2008.
KPJ is in expansion mode, targeting to acquire more specialist hospitals in 2009. It is able to continue expanding because of its asset-light position. Its hospitals have been or are being disposed of to Al-'Aqar KPJ REIT — a real estate investment trust in which it indirectly owns a 52% stake.
Selling hospital properties to the REIT and then leasing them back has enabled the company to realise its investment in the properties, raise cash to pare down debts and generate recurring income from consistent cash distribution from the REIT. With savings in interest and depreciation expenses, KPJ has been able to better utilise its capital for operational expansion.
Based on its closing price of RM2.55 on Dec 24, 2008, the stock was trading at a FY2008 and FY2009 price earnings ratio (PER) of 6.68 and 5.77 times respectively, according to Bloomberg's consensus data. KPJ's PER valuations are undemanding compared to its regional peers' FY2009 PER of 10 to 20 times, says OSK Research.
In terms of share price, KPJ was more resilient than the Kuala Lumpur Composite Index (KLCI) in 2008 as the stock fell only 26.3% for the year up to Dec 26 compared to KLCI's fall of 40%.
Despite its thin liquidity, KPJ is an excellent choice for long-term investment and portfolio balancing, with steady dividend payout, according to OSK Research. For FY2008, the company paid an interim gross dividend of seven sen a share on Sept 26.
