KPJ Healthcare Berhad

KPJ Healthcare may pay special cash dividend

With KPJ Healthcare Bhd expected to continue adopting an asset light model by injecting its hospital assets into Aqar Reit

PETALING JAY A: With KPJ Healthcare Bhd expected to continue adopting an asset light model by injecting its hospital assets into Aqar Reit, a potential special cash dividend may be in the offing, said JP Morgan in a note.

"Based on recent asset injection into Aqar Reit, we believe there is scope for special cash dividend given its management's intention to maintain a below-50% stake in the Reit (from current 53%) to avoid the consolidation of debt," the research house stated.

"We anticipate a cash or share payout of 6.5 sen or yield of 1% over and above our 13 sen estimate." JP Morgan stated that by injecting We anticipate a cash or share payout of 6.5 sen or yield of 1% over and above our 13 sen estimate. - JP MORGAN its hospital assets into Aqar Reit, KPJ minimises its asset base to fuel its expansion, therefore keeping net gearing at a minimum and maximising returns on equity.

KPJ has added three brown-field hospitals this year, PT KPJ Medika in July, Sabah Medical in August and Sri Manjung Specialist in September.

JP Morgan expects the three hospitals to be earnings accretive within the next 12 months, providing potential uplift to its earnings forecast which currently excludes the brown-field hospitals.

"These acquisitions are over and above KPJ's three year expansion plan - seven hospitals and 990 beds (excluding expansion plans of existing hospitals) for RM884mil, about 10% increase in beds per year," it said.

JP Morgan reiterated its positive view on KPJ on rising healthcare spending in Malaysia, with its dominant 22% market share. With on-track capacity expansion, the research body expected KPJ's steady asset-light capacity expansion to drive 22% per annum threeyear earnings per share compound annual growth rate with returns on equity rising from 15.9% in 2011 to 21% in 2014.

"We raise our price target to RM7.10, largely on base-year rollover and lower risk-free rate to reflect current long-term yields.

Trades at financial years 2012 and 2013 price to earnings of 24.5 times and 20.2 times, a steep discount to local peer IHH Healthcare Bhd, which is trading at 44.4 times and 34.8 times, and comfortably below regional peers at 39.7 times and 30.7 times."