THE BUZZ
Yesterday, KPJ announced
on Bursa Malaysia that it has entered into a Joint Venture Agreement
(JVA) with Naim Land SB (NLSB) to
design, develop, build, complete and own
a purpose-built hospital building
in Miri, Sarawak as well as
operate this new hospital subsequently.
OUR TAKE
More on the JV. Under the JVA, KPJ will hold a
70% stake, with NLSB holding the remaining 30% stake.
Pursuant to the JVA, NLSB will dispose
of a piece of land measuring 4 acres in Kuala Baram Land District in Miri
with vacant possession
given for the building
of the proposed
hospital, while KPJSB
will provide the
technical and management services
for the construction of the hospital building as well as assist the JV company
in matters relating to the construction and completion of the building. The
name of the proposed
hospital will be mutually
agreed on by both
parties in the future. We gather that the hospital will have a capacity
of about 120 beds. While the total cost of setting up the proposed hospital was
not disclosed, we believe that based on its bed capacity, the cost could range
from RM80m to RM100m. Based on KPJ’s standard practice, the proposed hospital will most likely
commence operation with an initial capacity of between 60 and 90 beds.
Bigger footprint in
East Malaysia. Upon completion, the
hospital will be KPJ’s 3rd hospital in Sarawak and its fifth in East
Malaysia. We view the proposed JV positively as this move is in line with KPJ’s
strategy to increase its presence in East Malaysia in light of this region’s
underserved market and untapped potential for private hospitals. We gather there are currently several private
hospitals in Miri but most of them are small in size. We think there is strong
demand for private healthcare in Miri, which
has a population of about 300,000 and a vibrant economy that is
underpinned by the oil and gas industry.
That said, given Miri’s proximity
to Brunei, there is also potential for the proposed hospital to treat
patients from that country.
Maintain Buy. We maintain our Buy recommendation on KPJ, at
an unchanged fair value of RM5.84, based on a FY12 PER of
23.1x. This multiple is derived
from the market cap-weighted average regional sector PER. We have always viewed KPJ as a stock with a compelling
growth story which is further reinforced by the fact that it is in a relatively defensive sector. As such, we reiterate our view that the stock
makes an excellent long-term investment.
Source: OSK188
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