KUCHING: Analysts have mixed views on KPJ Healthcare Bhd’s (KPJ) acquisition of two Indonesian hospitals.
This was reflected in its share price yesterday when it closed unchange at RM4.26 per share with 1.9 million shares traded.
While AmResearch Sdn Bhd (AmResearch) is positive on KPJ’s move to improve efficiency of the healthcare provider’s Indonesian operations attributed to growing healthcare demand in Indonesia, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) had a differing view on the earnings outlook of the company.
Citing a scenario, Kenanga Research said KPJ’s acquisition of two Indonesian hospitals would increase its net debt and net gearing from RM946 million and 0.72 times to RM1 billion and 0.79 times.
The research firm believes the company will incur higher cost as a result of borrowings and depreciation cost from owing the Indonesian hospital buildings.
Going forward, Kenanga Research expects KPJ’s earnings growth to be tepid in the next few quarters attributed to higher cost and less than favourable financial performance for its Indonesian operations.
Kenanga Research said, “In Indonesia, we expect losses in Rumah Sakit Bumi Serpong Damai to persist over the next several quarters due to difficulty in attracting doctors to its establishment leading to lower bed utilisation of 40 per cent.
“However, this is expected to be offset by the profitable Rumah Sakit Medika Permata Hijau.
“Looking into financial year 2015 (FY15), KPJ is targeting to open KPJ Perlis and KPJ Pahang Specialist.
“Additionally, KPJ will be incurring higher staff costs due to the gradual opening of more beds since it needs to maintain a certain required ratio of staff per hospital and hiring more staff in its headquarters to support its on-going projects.
“We expect start-up losses from Sabah, Muar and Rawang to drag earnings due to the typical gestation period averaging between two to three years,” the research firm believed.
Thus, Kenanga Research maintained its earnings forecast for KPJ while valuing the company’s share price with a fair value of RM3.54 per share.
On another note, AmResearch opined that while KPJ’s move to acquire the Indonesian hospitals will be good for the company over the long term, the contribution from the healthcare provider’s Indonesian operations at this juncture is still minimal at two per cent of total revenue in FY14.
The research firm maintained its ‘hold’ recommendation for the company’s share price valuing it with a fair value of RM4.10 per share adding that profit margin pressure from Goods and Services Tax (GST) as well as from opening of new hospitals will weigh down on the company’s earnings.
Meanwhile, KPJ in a filing to Bursa Malaysia on March 31 said its wholly-owned subsidiary Kumpulan Perubatan (Johor) Sdn Bhd has acquired a 100 per cent stake each in Crossborder Hall (M) Sdn Bhd (Crossborder Hall) and Crossborder Aim (M) Sdn Bhd (Crossborder Aim) for RM4.7 million.
Both companies are currently wholly-owned subsidiaries of Al-Aqar Healthcare REIT.
Crossborder Hall and Crossbolder Aim owned 50 per cent stake each in PT Al-Aqar Permata Hijau (Permata Hijau) and PT Al-Aqar Bumi Serpong Damai (Bumi Serpong Damai).
Permata Hijau is a special-purpose vehicle (SPV) which owns the five-storey Rumah Sakit Medika Permata Hijau hospital in Jakarta with 92 beds.