KPJ rises 4.3% after RHB upgrade to 'buy' with higher target price

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KUALA LUMPUR (July 1): Shares of KPJ Healthcare Bhd rose as much as 4.3% or 18 sen to RM4.40 today, after RHB Research upgraded its rating from “neutral” to “buy” with a higher target price of RM5.10.

At 4.15pm, KPJ (fundamental: 0.95; valuation: 1.1 ) pared down some gains to trade at RM4.36, up 14 sen or 3.32% with 2.51 million shares changing hands. The trading volume saw a surge compared to yesterday’s trading volume which saw some 491,200 shares done.

RHB Research said it likes KPJ for its strong earnings growth outlook amid robust demand for private healthcare services and it expects 17% earnings compound annual growth rate (CAGR) over financial year ended Dec 31, 2014 (FY14) to FY17.

After revamping its earnings model, the research house mostly kept its FY15 forecasts, but raised FY16 and FY17 earnings estimates by 7.8% and 13.9% respectively to incorporate the new capacity at its existing hospital and to reflect its updated pipeline.

“On revised earnings, the stock currently trades at 28 times and 14 times its 12-month forward price-earnings (P/E) and enterprise value to earnings before interest, tax, depreciation, and amortization (EV/EBITDA) respectively. Both multiples are at a discount to its 3-year historical mean.”

“We see no real reason for the discount as KPJ’s fundamentals have strengthened after its earnings disappointments in FY12 and FY13,” it added.

Therefore, RHB Research upgraded the rating to buy, with a new sum-of-parts derived target price of RM5.10, from RM4.25.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)