On Tuesday, Citi initiated coverage on KPJ Healthcare Bhd (KPJ:MK) stock, Malaysia's largest private-hospital operator by bed capacity, with a Buy rating and a price target of MYR2.65.
The firm highlighted that KPJ, which holds a 20% share of the private hospital beds in the country, is well-positioned to benefit from structural drivers that are expected to sustain the growth of private healthcare spending. This comes in the context of what is seen as underinvestment in the public healthcare sector.
Citi's assessment points to KPJ's recent strategic moves, including the disposal of non-performing overseas assets, which are anticipated to have an immediate positive impact on the company's financials.
The firm also noted KPJ's refocused strategy on maximizing the potential of domestic assets, particularly those in the early stages of development, which should provide a clear pathway to earnings growth.
Additionally, Citi remarked on the potential of medical tourism as a growth opportunity for KPJ. Despite being in the early phases, this sector is seen as another lever that could contribute to the company's expansion.
The firm's analysis suggests that KPJ's 2025 estimated enterprise value to EBITDA (EV/EBITDA) multiple, which is less than 10 times according to Citi's estimations, is one of the lowest in the Association of Southeast Asian Nations (ASEAN) region.
This is contrasted with the compound annual growth rates (CAGRs) for EBITDA and EPS, which are expected to be around 14% and 22% over the next three years.
Citi's price target of MYR2.65 per share represents a 25% expected total return (ETR) for KPJ Healthcare Bhd's shares. The investment firm's outlook for KPJ is based on the company's strategic initiatives and the favorable conditions within the healthcare sector in Malaysia and the broader ASEAN region.
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