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KPJ aims to finalise Australian aged care business disposal
Published on: Thursday, December 14, 2023
By: Bernama
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KPJ Healthcare Bhd has a bright prospect in Malaysia’s private healthcare sector, underpinned by rising affluence and ageing population, says research house.
PETALING JAYA: KPJ Healthcare Bhd’s (KPJ) proposed disposal of its aged care business in Australia would reduce operating costs and redirect resources to more profitable business segments, said research houses.
In a Bursa Malaysia filing, KPJ disclosed that Jeta Gardens (Qld) Pty Ltd and its wholly-owned subsidiary, Jeta Gardens Aged Care (Qld) Pty Ltd (vendors) have entered into a conditional business sale and purchase agreement (SPA) with DPG Services Pty Ltd on Dec 12, 2023.
The proposed disposal of KPJ’s aged care business involves a net cash payment of A$700,000, equivalent to RM2.148 million.
Coinciding with the business sale agreement, Al-‘Aqar Australia Pty Ltd, a wholly-owned subsidiary of Johor Corp-linked Al-‘Aqar Healthcare REIT, has also entered into a land sale agreement.
It said the land sale agreement involves acquiring the land and property where the vendors operate the aged care business from Principal Healthcare Finance Pty Ltd as trustee for the Principal Healthcare Finance Trust, and DPG Services.
Barring any unforeseen circumstances, the disposal is expected to be completed by the first quarter of 2024 (Q1 2024).
In a separate statement, Public Investment Bank Bhd viewed the proposed disposal positively.
The investment bank said it is a strategic move that aligns with KPJ and Al-’Aqar’s exit strategy in divesting assets and operations within the aged care business in Australia as the aged care business operation has been reporting losses for the past three financial years.
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Additionally, it said the aged care business has been facing challenging prospects, as highlighted in auditors’ reports indicating material uncertainty about the ability to continue as a going concern.
“We believe KPJ’s earnings trajectory would remain intact, buoyed by the continuous efforts to identify and optimise underperforming assets and with the group’s ongoing capacity expansions.
“We remain optimistic on KPJ’s long-term focus on medical health tourism which enables it to charge premium pricing, bolstering revenue intensity and economies of scale to offset inflationary pressures,” it said.
The investment bank raised its 2024-2025 forecast earnings for KPJ by 11%-14% as the factor in lower operating costs while maintaining its “outperform” call on KPJ with a higher target price (TP) of RM1.54.
Another research house, Kenanga Investment Bank Bhd was also positive on the divestment which is in tandem with KPJ Group’s strategy to review its loss-making operations and investments.
“In its nine months of 2023 (M9 2023), Jeta Gardens Group registered a loss of RM7 million. Moreover, by removing the underperforming aged care business, KPJ can reduce its operating costs and cash flow requirements,” it said.
On the outlook, Kenanga said it projects KPJ’s patient throughput to grow 14% in 2023 versus 12% in 2022, and bed occupancy rate (BOR) of 71% from 58% in 2022, as the demand for private healthcare services resumes its growth path post-pandemic.
“Additionally, we believe the fourth quarter of 2023 (Q4 2023) could potentially be boosted by a lower effective tax rate.
“We keep our earnings forecasts unchanged pending the completion of the deal. We reiterate our ‘outperform’ call with a TP of RM1.56,” it said.
Kenanga said KPJ has a bright prospect in Malaysia’s private healthcare sector, underpinned by rising affluence and ageing population.
“KPJ has a strong market position locally with the largest network of 29 private hospitals,” it said.
The research house noted that KPJ is poised for an earnings upcycle with two of its new hospitals having turned earnings before interest, taxes, depreciation, and amortisation (EBITDA) positive while another two only recorded small operating losses.
Meanwhile, RHB Investment Bank Bhd stated that Jeta Gardens registered a net loss of RM20.9 million in 2022.
“Should the transaction be completed by 2024, this would result in potential earnings accretion of 8% based on our 2024 earnings estimate.
“We make no changes to our estimates pending materialisation of the disposal,” it said.
RHB maintained a “buy” call with a TP of RM1.66.
“We still like the stock for its key strategic direction down the road, encouraging health tourism growth, and gradual improvements in operating efficiency with its hospitals’ gestation periods likely to start contributing meaningfully to the group by 2024,” it noted.
At noon, KPJ’s share price was up by two sen or 1.43% at RM1.42, giving it a market capitalisation of RM6.43 billion.
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