#Hot Stocks* KPJ shares, warrants surge on hope of higher 4Q turnover

KUALA LUMPUR (Feb 15): Shares of KPJ Healthcare Bhd gained as much as 2.59% in afternoon trades on the expectation of higher growth in turnover for its fourth quarter ended Dec 31, 2012 (4Q12).

At 3.00 pm, shares in the hospital operator rose 15 sen or 2.59% to a high of RM5.95 on volumes of 1.47 million shares.

KPJ’s warrants also saw interest, rising by 14 sen or 3.47% to an RM4.18 high on 44,200 warrants traded. Both the mother shares and warrants were among the top gainers on the stock exchange.

“We expect 4Q12 turnover to grow by circa 5% year-on-year (y-o-y) to reach RM550 million on the back of the commencement of KPJ Klang Hospital in July 2012,” Affin Investment Bank analyst Sharifah Farah said in a report this morning.

“This will take full year turnover to around RM2.1 billion, exceeding our financial year 2012 (FY12) forecast of RM2.0 billion,” she said. The company has slated Feb 28 to release its 4Q12 results.

KPJ Klang is expected to raise the group’s capacity by 7% to 3,144 beds.

Affin IB has forecast the number of inpatients to expand 2% to about 247,000 and that of outpatients to grow 9% to about 2.6 million.

“However, due to lumpy start-up costs from the Klang Hospital, we expect the group’s margin to be affected,” Sharifah noted.

“All in, our FY12 earnings may fall short by about 7%, as we now expect 4Q12 earnings to mirror that of 4Q11 at circa RM39 million, taking full year FY12 net earnings to RM144 million (+11% y-o-y), versus our estimate of RM155 million”.

KPJ has plans for five new hospitals slated between 2013 and 2015, for which it has allocated up to RM1 billion in capital expenditure (capex).

Beyond 2015, the group is looking to expand its presence further into Sabah and Sarawak, Affin IB said.

Despite spending between RM200 million and RM250 million on expansions annually, Affin IB expects KPJ to continue generating positive free cash flows of about RM50 million to RM100 million a year.

“As such, we believe KPJ is able to maintain its dividend payout ratio of about 50% which translates into a net yield of circa 2%,” Sharifah said.

“For exposure to the domestic defensive and growing healthcare sector, we continue to like KPJ Healthcare for its sound fundamentals, prudent and organic expansion plans and undemanding valuation in comparison to its peer, IHH Healthcare Bhd,” she said.

Affin IB has a “buy” call on the stock with an unchanged target price of RM6.44.

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