KPJ Healthcare likely to face challenges
In a note to clients, MIDF Research highlighted that KPJ had injected two hospital properties – a 15-storey building at KPJ Ampang Puteri and a 10-storey building at KPJ Penang – into Al-'Aqar Healthcare REIT for a total of RM241mil.
Under the agreement, KPJ would lease KPJ Ampang Puteri for 11 years and KPJ Penang for 15 years, with an annual rental increment of 2% and the option to extend the lease for another 15 years.
The brokerage pointed out: 'The rental for these two assets will be charged at approximately RM15mil in 2025 as a baseline. With the implemented SST, we opine the net charge would be about RM16mil.
'However, it should be noted that any contracts signed before the date of implementation will be exempted from SST for a year. Hence, 2026 rental is estimated to be nearly RM17mil. By 2040, we expect the rental for these two assets to reach about RM22mil,' it added.
MIDF Research also noted that KPJ had previously injected 19 out of its 30 hospitals into Al-'Aqar, with the 2024 lease, excluding the two newly injected assets, amounting to over RM107mil.
The RM100mil debt repayments would mitigate additional costs from the sale-and-leasebacks, while the additional working capital of RM139mil would support operational improvements.
'We believe the short-term support will streamline KPJ's financial performance amid the economic headwinds and policy changes,' it said.
On medical tourism, MIDF Research estimated that SST would add RM24mil to RM32mil per annum in tax expenses, given that around 9% to 12% of KPJ's revenue stemmed from this segment.
'We noted that this could increase the cost of treatment, subsequently reduce KPJ's competitiveness with other domestic and regional players and increase price sensitivity,' it explained.
The research house revised its earnings forecast for 2025-2027 downwards by 1%, adjusting its target price to RM3 from RM3.02, pegging on a price-earnings ratio of 28.8 times to the revised estimated earnings per share of 10.4 sen.
'Considering that the impact of the SST is minimal on the group's forecast results, we maintain our 'neutral' call on KPJ,' it said.
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