PETALING JAYA: The rising number of Covid-19 cases in the country remains a challenge for the healthcare sector and a re-rating catalyst, especially for KPJ Healthcare Bhd, would be in the form of recovery in patient visitations, among others.

       However, longer-than-expected gestation periods for its new hospitals and weaker-than-expected patient visitations would continue to impact its earnings for now.

       CGS-CIMB expects KPJ’s local operations to stay well below pre-pandemic levels in the third quarter of financial year 2021 (FY21) as Covid-19 cases remain high.

       The research house also expects the intensity of managing select Covid-19 patients and decanted non-Covid-19 patients from public hospitals to remain elevated in the third quarter, which could put downward pressure on margins.

       “We think that a recovery in bed occupancy rates (BOR) and a normalisation in patient visitation will only occur in the fourth quarter of FY21 onwards,’’ it said.

       The house has downgraded KPJ to a “hold” from “add”’ with a lower target price (TP) of RM1.05 a share in line with its earnings cuts.

       Its TP is still based on a 24.5 times current year 2022 price-earnings (P/E) ratio in line with its 10-year average forward P/E. It also believes that current valuations fairly reflect an expected gradual recovery in FY22.

       CGS-CIMB is not the only research house that has downgraded KPJ. TA Research has also lowered its TP to RM1.05 a share (previously RM1.06). It also downgraded the stock to ‘‘sell’’ from “hold’’ as the BOR is expected to remain sluggish in the second half of 2021.

       Kenanga Research downgraded its FY21 net profit forecast by 29%.

       It said despite the historical trend of the second half being the stronger half (for example, over the past three years, second half accounted for 53%-62% of full-year earnings), it does not expect the pick-up in the next half to help meet its full-year estimates.

       It maintains its “market perform’’ call on the stock and a TP of RM1.03 a share.

       However, MIDF Research maintains its “buy’’ call with an unchanged TP of RM1.12 per share.

       KPJ reported a 61% year-on-year decline in first-half net profit to RM19.9mil, due to weaker operating efficiency. The performance came in below consensus estimates, at 17% of full-year estimates.