- KPJ Healthcare Bhd announced yesterday that its wholly-owned subsidiary Kumpulan Perubatan (Johor) Sdn Bhd is acquiring a 100% stake each in Crossborder Hall (M) Sdn Bhd and Crossborder Aim (M) Sdn Bhd for RM4.7mil in cash.

- The companies are currently wholly-owned subsidiaries of Al-‘Aqar Healthcare REIT.

- Crossborder Hall and Crossbolder Aim own 50% stake each in PT Al-‘Aqar Permata Hijau and PT Al-‘Aqar Bumi Serpong Damai.

- Permata Hijau is a special-purpose vehicle (SPV) which owns the five-storey Rumah Sakit Medika Permata Hijau hospital in Jakarta (92 beds). Meanwhile, Bumi Serpong Damai owns the seven-storey Rumah Sakit Medika Bumi Serpong Damai hospital in Tangerang (220 beds).

- KPJ said the acquisitions is part of its plan to rationalise and streamline its Indonesian operations. Particularly, the acquisition will allow it flexibility in managing the hospitals and improve operational efficiency. KPJ currently leases the two hospitals with a gross lease rental of ~RM7.5mil per annum.

- KPJ is acquiring these companies at a 10% premium to the net asset value of the Crossborder companies (RM80mil). KPJ will also need to settle a RM78.3mil shareholders’ advance that was given from Al-‘Aqar to the target companies. - KPJ intends to fund the acquisition by internally generated funds, and the shareholders’ advance via bank borrowings. We do not expect the acquisition to have a significant impact on KPJ’s net gearing (0.8x as at end-FY14).

- The acquisitions are expected to be completed by 3QFY15.

- We believe that the move is positive if it would allow KPJ to improve efficiency of its Indonesian operations on the back of growing healthcare demand in the republic. Both hospitals are estimated to have occupancy rates of ~60% each.

- For FY14, PT Permata Hijau and PT Bumi Serpong reported profit after tax of RM694k and RM1.49mil, respectively. Nevertheless, contribution from Indonesia to the group was still minimal at 2% of total revenue (RM2.6bil) for FY14. We maintain HOLD as we expect margin pressure from GST as well as from new hospitals coming on-stream. 

Source: AmeSecurities