Investment Highlights

• Proposed disposal of 5-storey carpark block to Al-Aqar

• 9,956sqm area of carpark and motorcycle bays

• Disposal to pare down debt

• Gradual injection into Al-Aqar from 2018 onwards

• Earnings forecasts maintained

• Upgrade to BUY with an unchanged TP of RM1.06

Proposed disposal of 5-storey carpark block to Al-Aqar REIT. KPJ Healthcare announced that it has entered into a sales and purchase agreement (SPA) via its wholly-owned subsidiary Selangor Specialist Hospital (SGSH) to dispose a 5-storey carpark block together with a half basement level and an open roof level of KPJ Selangor Specialist Hospital with Al-Aqar REIT (Al-Aqar) for a purchase consideration of RM13.0m.

9,956sqm area of carpark and motorcycle bays. The carpark block to be disposed by SGSH consists of 286 carpark and 83 motorcycle bays located within KPJ Selangor Specialist Hospital. The disposal excludes the consultant office suite which was completed recently. The purchase price for the carpark block which has received in certificate of completion and compliance (CCC) in 2012 was arrived after the land was professionally valued at RM13.0m. KPJ expects to complete the transaction within six months from the date of the SPA is signed.

Disposal to pare down debt. Our check with the management reveals that KPJ intends to use the proceeds from the disposal of the carpark and motorcycle bays to pare down debts owed by KPJ Selangor Specialist Hospital. In addition, the proceeds will also be used to repay any advance payment received by the hospital from the KPJ group.

Gradual injection into Al-Aqar from 2018 onwards. We understand from the management that there will be gradual asset injection into Al-Aqar REIT from 2018 onwards starting with its brownfield expansions. We were also made to understand that KPJ Selangor’s consultant office suite will be injected once it has maximized its investment tax allowance (ITA) which will allow KPJ to benefit from a lower tax from its investment in building new hospitals. KPJ estimates to inject the consultant office suite in 2022.

Source: MIDF Research - 12 Dec 2017