Broker: Maybank Investment Bank Berhad
Date of Report: September 2, 2025

KPJ Healthcare: Riding the Wave of Revenue Intensity and Strategic Expansion in Malaysia’s Private Hospital Sector

Strong Momentum for KPJ Healthcare: Bullish Outlook Despite Short-Term Challenges

KPJ Healthcare Berhad (KPJ MK), Malaysia’s largest private hospital operator, continues to demonstrate resilience and growth potential amid evolving market dynamics. Despite a softer first half in 2025, KPJ remains well-positioned for a rebound, supported by its robust expansion strategy, increasing revenue intensity, and a focus on operational efficiency. The company currently commands a 52-week high/low of MYR 3.02/1.91, and as of this report, its share price stands at MYR 2.60, with a BUY rating and a 12-month target price of MYR 3.00—a potential upside of 17%.

1H25 Recap: Navigating Payor Pressures and Shifting Inpatient Trends

KPJ’s second quarter of 2025 saw steady year-on-year growth, with revenue up 11%, EBITDA up 6%, and core net profit rising 4%. However, the first half core net profit missed expectations due to several headwinds:

• Festive seasonality impacted patient volumes.
• Increasing payor pressures from stricter guarantee letter (GL) criteria and reclassification of certain procedures to out-of-pocket (OOP) payments.
• Gradual industry-wide shift towards pay-and-claims models by insurers.

These factors contributed to a structural shift from inpatient (IP) to outpatient (OP) and ambulatory care services, as reflected in KPJ’s operational data.

Revenue Intensity Drives Margins: Case Complexity and Technology as Catalysts

Despite challenges, KPJ achieved higher revenue intensity, supported by a growing share of complex cases and the adoption of robotic procedures. This, in turn, sustained a healthy EBITDA margin at 23% for 2Q25. Notably, KPJ has reached 95% of its bed capacity expansion target for FY25, with 3,930 beds operational. Four out of six recently launched hospitals are already EBITDA-positive, underlining management’s strategic execution and capacity ramp-up.

Back-Loaded Earnings Uplift Expected in 2H25

Looking forward, KPJ expects higher revenue intensity and case-mix complexity in the second half of 2025. The anticipated improvement in patient volumes—including both local and foreign patients—should drive further earnings growth. The delay of Malaysia’s Ministry of Health’s DRG (Diagnosis-Related Groups) implementation to FY27 is an added tailwind, maintaining uncapped earnings potential for domestic players like KPJ.

Shareholder Structure and Market Capitalisation

KPJ’s major shareholders include Johor Corp (43.4%), Employees Provident Fund (16.4%), and Waqaf An-Nur Corp Bhd (6.2%). The company’s market capitalisation stands at MYR 11.8 billion (USD 2.8 billion), with a free float of 33.4% and 4,527 million shares issued.

Financial Performance and Forecast: Key Metrics at a Glance

Sum-of-the-Parts Valuation: Anchored by Hospital Operations

KPJ’s valuation is based on a sum-of-the-parts (SOTP) approach, with a target price of MYR 3.00 per share, implying a FY26E EV/EBITDA of 13x and a PER of 31x, consistent with its five-year mean. The largest value driver is its hospital operations, valued at MYR 16,488 million using DCF methodology (WACC: 7.5%, LTG: 2%), with net debt of MYR 3,253 million factored in.

Operational Highlights: Growth in Revenue per Patient and Bed Occupancy

Key operational metrics reflect KPJ’s strong fundamentals and strategic focus:

• Average revenue per inpatient and outpatient continues to rise, driven by case complexity and technology adoption.
• Bed occupancy rate (BOR) remains robust, averaging 62-73% across recent quarters, despite ongoing expansion.
• EBITDA margin maintained at 23% in 2Q25, demonstrating cost discipline and revenue quality.
• Gestating hospitals are progressing well, with four out of six now EBITDA-positive.

Strategic Direction: Domestic Strength, Cost Efficiency, and Health Tourism

KPJ’s new strategy leverages its dominant domestic footprint—over 95% of revenue is Malaysia-based—and centralised procurement to enhance cost efficiency. The company is aggressively expanding bed capacity and upgrading infrastructure to support revenue growth. It is also poised to benefit from the continued rise in health tourism, a sector supported by Malaysia’s reputation for affordable, quality care.

Share Price Performance and Drivers

KPJ’s share price has shown resilience, outperforming the Kuala Lumpur Composite Index over the past 12 months (+35% absolute return). Key drivers include:

• Operational improvements post-pandemic and full lifting of lockdowns.
• Leadership changes and exit from loss-making overseas ventures in Indonesia and Australia.
• Favorable regulatory developments, such as Bank Negara’s co-pay options and the delayed DRG implementation.

Financial and Operational Risk Factors

While KPJ’s outlook remains positive, investors should note several risk factors:

• Potential margin compression upon eventual DRG implementation.
• Longer-than-expected gestation for new hospitals could dampen earnings.
• Shortages of nurses and skilled medical professionals may constrain expansion.

Key Financial Ratios and Operational Metrics

Historical Ratings and Target Price Changes

KPJ Healthcare has maintained a predominantly BUY rating since August 2022, with the target price steadily increasing from RM1.0 to RM3.2 before settling at RM3.0 in recent months, reflecting strong analyst confidence.

Conclusion: KPJ Healthcare Set for Further Upside

KPJ Healthcare’s scale, domestic focus, and execution on both revenue and cost initiatives position it as a top pick in Malaysia’s healthcare sector. With an attractive growth profile, improving margins, and multiple re-rating catalysts—including health tourism and ramp-up of new hospitals—KPJ is well poised for continued outperformance. Investors should remain mindful of regulatory and operational risks but can look forward to a compelling long-term growth story supported by structural trends and strategic management.