- Last Friday, KPJ Healthcare Bhd announced that it has proposed to acquire commercial parcels in a mixed commercial building to be erected in Johor Bahru (JB) for RM90mil.

- The proposed acquisition is for the commercial parcels (measuring ~125,000 sq ft) in a mixed commercial building called Coronation Square. KPJ’s wholly-owned subsidiary – Kumpulan Perubatan (Johor) Sdn Bhd – is purchasing the parcels from Coronade Properties Sdn Bhd.

- According to media reports, Coronation Square is a 2.53ha development comprising a medical suite, three blocks of serviced apartments, an office tower and a hotel with retail podium located in the JB transformation zone. In fact, Coronation Square is part of the 100ha Ibrahim International Business District (IIBD) that was launched over the weekend by the Sultan of Johor.

- According to reports, IIBD will help transform JB into a world-class city and metropolis by 2020. IIBD is spearheaded by Johor Corp.

- KPJ said it intends to create an outpatient centre with healthcare facilities at the commercial space to be acquired. Services to be provided include complementary medicine, wellness services, as well as senior living care for service apartments within the Coronation Square development. The centre is targeted at both local and foreign patients, and will complement its existing hospitals in the state.

- Construction is expected to begin within six months from the date of approval of the final building plan by authorities. KPJ is expected to gain vacant possession of the parcels four years from the approval of the building plan, which was submitted on 22 Oct.

- KPJ did not provide details on the intended capacity and investment costs of the outpatient centre. As such, we maintain our numbers pending further clarity on the proposal. Furthermore, the facility will only be ready earliest in 2019.

- KPJ intends to fund the acquisition from a combination of internally-generated funds and external borrowings. As at end-June, KPJ’s net gearing stood at 0.8x (with cash balance of RM385mil). KPJ is expected to release its 3Q results on 26 Nov. We maintain HOLD.

Source: AmeSecurities Research - 23 Nov 2015