KPJ Healthcare Berhad

KPJ HealthcareWA trading at slim discount

Afrom recently listed IHH Healthcare Bhd, KPJ Healthcare Bhd is seen as another resilient stock with exposure to the recession proof healthcare sector.

Afrom recently listed IHH Healthcare Bhd, KPJ Healthcare Bhd is seen as another resilient stock with exposure to the recession proof healthcare sector. With its mother share easing 6% from an alltime high of RM6.40 in July to RM6.02 last Tuesday, analysts continue to favour KPJ due to its undemanding valuations and longtermgrowth prospects, driven by its regional expansion plans.

Investors could also look at KPJ Healthcare WA that is trading at a slim discount to the mother share. Issued on Jan 11, 2010,KPJWA has a strike price of RM1.70 with a conversion ratio of 1:1. Investors have plentyof opportunities to convert the warrants into new KPJ shares as they expire on Jan 10,2015.Based on current prices, KPJWA has a gearing of 1.4 times.

Last Tuesday, KPJWA closed at RM4.28,which is at a 0.66% discount to its underlying share, which closed at RM6.02. In the last six months, KPJWA saw an average trading volume of 168,678 warrants.

According to Bloomberg data, KPJ has 10 "buy", two "neutral" and three "sell" calls with a consensus fair value of RM7.01.

The specialist hospital operator has been acquiring new assets in Malaysia and Indonesia in its bid to become a regional player. In September,KPJ proposed to buy a 100% stake in Sri Man jung Specialist Centre Sdn Bhd in Sitiawan, Perak, for RM14.25 million. KPJ is also buying two parcels of adjacent land for RM3 million at the site, which will be utilised for the hospital's expansion.

The group is also acquiring an 80% stake in PT Khidmat Perawatan Jasa Medika (PTMedika) from its parent company, Johor Corp,for RM15.84 million. PT Medika operates a private hospital in Jakarta, Indonesia, which KPJ has been managing for the last 15 years for an annual fee of RM250,000. Independent adviser Affin Investment Bank says PT Medika is expected to contribute positively to KPJ and it will help KPJ's expansion in Indonesia.

In the circular to shareholders,Affin says the offer price is fair and reasonable with
a priceearnings ratio of 8.6 times compared with the adjusted average PER of 16.07 times of regional peers.

In addition, KPJ is buying a 13.4acre land parcel in Johor for RM45 million to build a hospital and is disposing a land parcel to AlAqar Healthcare Real Estate InvestmentTrust (REIT) for RM3.6 million. Affin views both deals as fair and reasonable and advises shareholders to vote in favour of the deals at an EGM to be held on Nov 29.

Last week, it was reported in an Indonesian daily that KPJ plans to build five more hospitalsthere. For the first half ended June 30,2012, KPJ's net profit rose 18% to RM68.2 million or 11.79 sen per share from RM57.7 million or 10.84 sen a year earlier.