KUALA LUMPUR: Kenanga Research expects a slow earnings recovery for KPJ Healthcare Bhd as a lower-than-expected number of patients and higher-than-expected tax rate resulted in an earnings disappointment in FY21.

       The research firm said it downgraded its FY22 earnings forecast by 29% due to a lower number of patients and a higher tax rate of 37%.

       "Our TP is raised marginally from RM1.01 to RM1.04 based on 30x FY23E EPS in line with historical 5-year forward mean (roll forward from FY22E to FY23E).

       "With lack of rerating catalyst and the new hospitals under gestation period which could continue to be a drag to earnings, we reiterate our 'market perform' call," it said.

       In FY21, KPJ's revenue rose 10% due to a higher number of patients.

       However, Kenanga noted that the desired optimal operating efficiency was yet to be achieved due to high fixed costs, which comprise staff costs, maintenance costs and depreciation/amortisation and finance costs.

       "Consequently, EBITDA and PBT fell 2% and 23%, respectively, which was further exacerbated by lower contribution from new hospitals under gestation period.

       "New hospitals still under gestation, such as KPJ Bandar Dato’ Onn, KPJ Batu Pahat, KPJ Perlis and KPJ Miri, remained loss-making, contributing to the lower EBITDA weighing FY21 PATAMI lower by 54%," said Kenanga.

       The broker added that FY21 Patami of RM51mil came in below expectations at 60% and 84% of its and consensus estimates.