Alliance Research downgrades KPJ Healthcare to Sell, raises target price

Alliance Research downgrades KPJ Healthcare to Sell, raises target price
Business & Markets 2013
Written by theedgemalaysia.com
Monday, 29 July 2013 10:13

KUALA LUMPUR (July 29): Alliance Research has downgraded KPJ HEALTHCARE BHD [] to Sell at RM7.25 with a higher target price of RM6.32 (from RM6.07) after the Johor Bahru High Court ordered KPJ Healthcare to pay a sum of RM70.6 million to Hospital Penawar Sdn Bhd for the breach of an agreement signed in May 1995.

In a note Monday, Alliance Research vice president for equity Cheah King Yoong said the sum awarded represented 43.8% of his FY13 core net profit estimates.

“We lower our FY13 net profit estimates by 41.4% and but leave our FY13 core net profit estimates unchanged. Furthermore, we see downside risk to KPJ’s dividends despite an appeal to the Court of Appeal and ample cash of RM232.9 million as of 1QFY13.

“With the recent share-price run, FY13 and FY14 P/E valuations have been stretched to 28.7x and 27.6x respectively which are unjustified despite a 15.1% 3-year earnings CAGR. Given this setback and risk of longer than expected gestation period for upcoming new hospitals, we downgrade from neutral to Sell with a higher target price of RM6.32 as we rollover valuation to FY14,” said Cheah.