- We reaffirm our BUY recommendation on KPJ Healthcare with a fair value of RM7.90/share, based on a DCF valuation.
- In line with KPJ’s expansion plans, KPJ announced a joint venture
agreement (JVA) with UTM Holdings Sdn Bhd to develop and operate a
private hospital in Kulaijaya, Johor. KPJ effectively holds a 60% equity
interest, while UTM Holdings holds the remaining 40%.
- UTM Holdings will lease the land for the greenfield project from
Universiti Teknologi Malaysia and sub-lease portion of the land to the
joint venture company. The lease is for a period of 30 years with an
option for a further lease of 30 years via a sub-lease agreement. KPJ,
on the other hand, will provide technical and management services for
the construction of the hospital and will obtain planning approval. KPJ
is also the appointed manager for the operation and administration of
the hospital.
- The hospital will have multi-discipline services and is earmarked to
have a capacity of 500 beds. The first phase would consist of 150 beds,
costing RM128mil, comprising of land, building and medical equipment.
The hospital is expected to commence operations in FY16F.
- We view this positively as KPJ and UTM Holdings could leverage on
each other’s expertise in healthcare and education respectively. The JVA
will also provide training ground opportunities for KPJ’s technical
staff. The rising healthcare spending in Malaysia and ageing population
will support KPJ’s expansion.
- KPJ is expected to commence operations of two new hospitals by the
end of FY13F. Sabah Medical Centre and Rawang Specialist Hospital and
currently awaiting their licenses from MOH. This would bring KPJ’s total
operational hospitals to 24 (with additional 321 beds) in Malaysia by
end-FY13F, with a 19% domestic market share.
- Balance sheet remains healthy. The group is sitting on a cash pile of
RM291mil, as at 2QFY13. Our EPS forecast remain unchanged for now. All
in all, our positive view on KPJ remains intact over the longer term,
riding on the booming healthcare sector and medical tourism.
- Valuation wise, the stock is trading at forward PE of 31x, at a discount of 48% to IHH Healthcare (HOLD, FV: RM3.80/share).
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