THE BUZZ
Last Friday KPJ has announced on Bursa Malaysia that its major shareholder Johor Corporation(JCorp) had on 27 Feb 2012 offered to sell its entire equity holding in PT KPJMedika comprising 16,000 ordinary sharesof IDR1m each, or equivalent to 80% equity in PT KPJ Medika, for a total cashconsideration of RM15.84m. KPJ said it had, via a letter dated 23 March 2012,accepted the offer.
OUR TAKE
More on the deal.PT KPJ Medika (Medika) owns and operates a private specialist hospital known as Rumah Sakit Medika Permata Hijau (RSMPH) in Jakarta West, Indonesia with 92 beds. KPJ has been managingthe hospital on behalf of JCorp for the last 15 years, for which KPJ receivesan annual fee of about RM0.25m. The remaining 20% stake in Medika is heldby a local partner to comply withIndonesia's foreign ownershipregulations.
A good deal. Theacquisition came is as no surprise as it is in line with KPJ's strategy to expandits hospital network in Indonesia in order to tap the strong potential demandfor private healthcare in Indonesia. Although this is a related partytransaction (RPT), there is no cause for concern as it represents a win-wintransaction between JCorp and KPJ. Disposing of its direct interest in Medikawill enable JCorp to consolidate its healthcare business under KPJ while KPJwould be able to build its hospital network in Indonesia. At RM15.84m for an80% stake in Medika, this translates into a PER of approximately 8.7x on Medika'sFY11 core net profit. As such, we view the purchase price as attractive comparedwith the minimum regional sector PER of 15x PER among listed healthcare players.The acquisition will also enable KPJ to build on its pool of resources as wellas create synergy with RS Bumi Serpong Damai, KPJ's existing hospital inJakarta.
Maintain BUY. Wemaintain our Buy recommendation on KPJ, at an unchanged FV of RM5.84, based on23.1x PER on FY12 EPS. This multiple is derived from the market cap weighted averageregional sector PER. We have always liked KPJ as a stock with a growth story,and one that is in a rather defensive sector. We reiterate our view that the stockis an excellent long term investment.