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KPJ: Defensive business and earnings

Demand for healthcare services is relatively recession-proof, so we do not expect KPJ Healthcare’s (RM4.28) earnings to be affected by the prevailing uncertainties and global economic slowdown.

09-12-2011

Demand for healthcare services is relatively recession-proof, so we do not expect KPJ Healthcare’s (RM4.28) earnings to be affected by the prevailing uncertainties and global economic slowdown. Indeed, the company continues to plan for new additions to its network of 20 specialist hospitals in the country. KPJ also manages two hospitals in Indonesia.

Last month, KPJ announced plans for two new hospitals in Klang and Penang. The company also proposes to acquire several plots of land in Sazaen Business Park, Klang, for some RM23.8 million. Development costs for the total area of 1.84ha are estimated at RM110 to RM120 million, while construction costs for the hospital building are about RM80 million. We expect completion in 2015.

The company has entered into an agreement to lease a hospital building from Aseania Development for a 10-year period. This new facility will be on land adjacent to the existing Penang Specialist Hospital.

Aseania has the rights to develop a township in Seberang Prai and will build the medical facility according to KPJ’s specifications.

These plans are in line with the company’s target to open at least one or two hospitals per year over the next few years. It already has several new projects under development.  

Expansion projects under development

Construction of the Bandar Baru Klang Specialist Hospital is complete and the hospital is expected to open within the next few months. This hospital has been earmarked for sale to the Al-’Aqar KPJ REIT, along with the Kluang Utama Specialist Hospital and Rumah Sakit Bumi Serpong

Damai in Indonesia for a collective RM139 million.In addition, construction of a new hospital building in Kota Kinabalu is underway. Upon completion, expected to be in 1H12, the Sabah Medical Centre will be relocated from its existing facility to the new building. The new 250-bed hospital is expected to cost RM180 to RM200 million. Recall that KPJ acquired a 51% stake in Sabah Medical Centre, back in June 2010 for RM51 million. Two other smaller hospitals, in Muar and Pasir Gudang, are planned for 2H12.

Looking further head, KPJ has plans for another hospital in Tanjung Lumpur, Kuantan, under a 70:30 joint venture with Pasdec Corp. The hospital building is slated to complete sometime in 2013. Another specialist hospital in Perlis, one of the three states where KPJ does not have a presence, is on the drawing board. This 90-bed hospital will be a 60:40 joint venture with the Yayasan Islam Perlis.

Construction is targeted for completion in 2014. The company is also in preliminary discussions to set up a hospital in Bandar Datuk Onn, Johor. This facility is estimated to have a capacity of almost 400 beds once it is fully operational.

These new hospitals and organic expansion will underpin growth over the next few years. Typically, a new hospital opens in phases, with the addition of more beds, facilities and range of services over time in lockstep with demand growth.

Given its experience, KPJ is also exploring opportunities to provide consultancy to other providers, both locally and abroad, in areas such as healthcare business development and hospital management.

Expanding upstream education arm

At the same time, KPJ plans to expand its education arm, in part to support the growth of its hospital network. The company first set up the Puteri Nursing College back in 1991 to ensure a steady pool of capable and qualified nursing staff for its hospitals. The college was recently awarded university college status, and renamed KPJ International University College of Nursing and Health Sciences (KPJIC). That means it can now offer its own degree programmes.

In view of its relative success, however, KPJ now plans to develop KPJIC into a leading centre for nursing and medical-related studies in the country — to produce qualified healthcare personnel not only for its own hospitals but also for other private healthcare operators and the public healthcare sector.

KPJ believes it has an edge over similar education groups in the market, in that it can leverage existing infrastructure. For instance, students can undergo clinical practice in its network of hospitals where its medical consultants and senior nurses can also give lectures and guidance. Indeed, the company has not registered any noticeable drop in student intake, unlike slowing growth for some of its peers.

KPJIC has total capacity for 2,500 students at its main campus in Nilai, Negeri Sembilan, and a branch campus in Johor Baru. A second branch campus is currently under construction in Bukit Mertajam. Some RM120 million has been budgeted to expand the campus in Nilai in two phases. The company expects capacity to increase to 5,000 students by 2013. By 2016, KPJIC hopes to achieve full university status, with its own medical school and total student intake capacity of some 10,000, including local









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