Maybank Investment Bank Berhad
September 2, 2025

KPJ Healthcare: Bullish Momentum Ahead as Revenue Intensity and Expansions Drive Growth

Overview: KPJ Healthcare’s Strong Positioning in Malaysia’s Private Hospital Sector

KPJ Healthcare Berhad (KPJ MK) stands as Malaysia’s largest private hospital operator, boasting 30 hospitals and over 3,800 operational beds. With over 95% of its revenue derived from domestic operations, KPJ has secured the highest market share in inpatient admissions nationwide. The company’s strategic focus on centralised procurement, aggressive bed capacity expansions, and infrastructure upgrades has positioned it to capture rising healthcare demand driven by an ageing population, increasing insurance penetration, and the growth of an affluent demographic seeking premium health services.

• Shariah Compliant
• Market Capitalisation: MYR11.8B (USD2.8B)
• Major Shareholders: Johor Corp. (43.4%), Employees Provident Fund (16.4%), Waqaf An-Nur Corp Bhd (6.2%)
• Free Float: 33.4%
• Issued Shares: 4,527 million
• 12-Month Price Target: MYR3.00 (+17% upside)
• Current Share Price: MYR2.60

Financial Performance: Steady Growth Despite Short-Term Headwinds

KPJ’s 2Q25 results showed resilience, with revenue, EBITDA, and core net profit (CNP) rising 11%, 6%, and 4% year-on-year, respectively, even as 1H25 CNP fell short of expectations due to festive seasonality and softer patient volumes. The company’s EBITDA margin held steady at a healthy 23%, supported by higher case complexity and the adoption of robotic procedures.

Key Operational Highlights

• Revenue Intensity: Uplifted by higher case complexity and robotic procedures, countering payor pressures and insurer discounts.
• Margins: EBITDA margin remains robust at 23% for 2Q25.
• Capacity Expansion: Bed count reached 3,930, representing 95% of the FY25E target. Four of six hospitals under gestation are now EBITDA-positive.
• Patient Volume Trends: Outpatient growth continues upward, while inpatient volumes show a gradual decline due to payor pressures and a shift toward ambulatory care.
• Back-Loaded Earnings: Expectation of stronger revenue intensity and margin improvement in 2H25, underpinned by higher case-mix complexity and volume recovery from local and foreign patients.
• Government Policy: Delay in Malaysia’s Ministry of Health DRG (Diagnosis-related Groups) implementation to FY27E maintains uncapped earnings potential for pure Malaysian players like KPJ.

Strategic Developments and Price Drivers

KPJ Healthcare has undergone significant strategic changes in recent years:

• Full exit from Indonesian operations and divestment of loss-making aged care business in Australia.
• Appointment of Chin Keat Chyuan as President and CEO, reinforcing a focus on core domestic growth.
• Leveraging centralised procurement to drive cost efficiencies and operational margin improvements.
• Government commitment to introduce DRG as a response to medical inflation concerns, although the rollout is delayed.
• Health tourism remains a growth catalyst, with KPJ poised to benefit from rising international patient flows.

Valuation: SOTP Approach and Upside Potential

Maybank IBG Research maintains a Sum-of-Parts (SOTP) target price of MYR3.00, implying a FY26E EV/EBITDA of 13x and a PER of 31x, in line with the company’s 5-year average.

Financial Metrics and Operational Ratios

KPJ Healthcare’s financial metrics reinforce its operational strength and prudent capital management. Notably:

• Operating Margins: EBITDA margin improved to 24% in FY24 with a bed occupancy rate (BOR) of 69%.
• Leverage: Net gearing reduces from 44.6% (FY23A) to a forecasted 7% by FY27E.
• Dividend Yield: Ranges from 1.4% to 2.2% over FY25E-FY27E.
• Free Cash Flow: Increasing to MYR451.4 million by FY27E.
• Capex: Expected to decline as a percentage of revenue, improving free cash flow generation.

Operational Trends: Outpatient vs. Inpatient Growth

A notable structural shift is underway in KPJ’s patient volumes:

• Inpatient volumes: Show a downward trend, partly due to tighter payor criteria, reclassification of procedures to out-of-pocket payments, and a gradual move toward pay-and-claims models.
• Outpatient volumes: Continue to rise, reflecting a shift toward ambulatory care services and increasing average revenue per patient.
• Bed Occupancy Rate: Remains strong despite some volatility due to festive seasonality and pandemic recovery phases.

Swing Factors: Key Upside and Downside Risks

Upside Catalysts:

• Continued improvement in revenue intensity and bed occupancy rates post-pandemic
• Growth in health tourism and earnings accretion from new hospitals
• Strategic cost controls and focus on domestic strengths

Downside Risks:

• Potential margin compression from DRG implementation
• Prolonged gestation for new hospitals
• Shortages of nurses and skilled medical professionals

Historical Share Price Performance and Recommendations

KPJ’s share price has shown significant growth over the past 12 months, with a 35% absolute gain and 44% relative outperformance versus the Kuala Lumpur Composite Index. The company has consistently received “BUY” ratings, with price targets rising in line with operational and financial improvements.

Conclusion: KPJ Healthcare Poised for Continued Growth

KPJ Healthcare’s operational resilience, robust financial metrics, and strategic focus on domestic healthcare services underpin a bullish outlook for the company. With ongoing margin improvements, capacity expansions, and favourable policy tailwinds, KPJ is well-positioned to deliver above-market returns in the coming years. Investors should watch for sustained revenue intensity, health tourism growth, and successful ramp-up of new hospitals as key drivers for further re-rating and upside.