- We reaffirm our BUY recommendation on KPJ Healthcare Bhd, with an unchanged fair value of RM8.00/share, based on our DCF valuation.

- As highlighted previously, the group have been proactively preparing themselves for the aged care business in Malaysia, following the success of its acquisition of Australian based Jeta Gardens (51% stake) acquisition in 2010. Jeta Gardens is an Asian-themed retirement resort that houses an aged care facility, retirement homes and apartments in Queensland.

- It was reported in a local daily that KPJ could potentially collaborate with property developer to launch the retirement villages, given that building such greenfield facilities is beyond its expertise. The group is also looking at building facilities which consist of various types of properties such as apartment units and villas.

- While studies are ongoing for the development of KPJ’s Malaysia retirement village, the facility would cater to both those who are highly dependent on medical personnel, and retirees that are independent and relatively healthy.

- Although earnings contribution from its aged care business is still relatively small, the venture into retirement villages in Malaysia could turn into a long-term revenue generator, in our view. Note that the Malaysian aged care industry lacks proper attention from qualified nurses and doctors. More importantly, present baby boomers are approaching retirement age and it might be the right time ripe to cash in on this segment.

- Underpinned by KPJ’s first mover advantage in the aged care business and supported by its “know-how” attained at Jeta Gardens, a planned Step Down Services centre at the old Tawakkal Building is expected to be completed in FY14F, subject to approval from the health ministry. Meanwhile, a replica of Jeta Gardens in Bandar Dato’ Onn, is earmarked to be opened in FY16F.

- Our bullish conviction on KPJ remains, thanks to its strong domestic foothold riding on the lucrative and booming local private healthcare sector and its defensive earnings profile.

- Growth prospects remain favourable with bed capacities expected to grow by 65% over the next three years, driven by 8 greenfield, 4 expansions and 2 acquisitions.

Source: AmeSecurities