Investment Highlights

• Exiting Jeta Garden

• Expansion plans on track

• Going big in Indonesia

• No new greenfield injection into Al-Aqar REIT until FY19

• Earnings forecasts maintained

• Maintain BUY with an unchanged TP of RM1.06 per share

Exiting Jeta Garden. KPJ Healthcare disclosed in our recent meeting with the management that it is in an advance stage of disposing Jeta Garden, its aged care center in Australia. According to management, it is currently in the midst realigning its operation to focus on delivering medical services. Jeta Garden will be sold at net tangible asset (NTA) value and the proceeds will be recognised as a gain on disposal. We understand that the disposal will only be completed by first half of FY18 following an EGM in February 2018. Therefore, Jeta Garden will still be consolidated in FY17.

Expansion plan on track. We understand from the management that KPJ Perlis which is slated to be completed in December 2017 is now waiting for the clearance from Ministry of Health (MOH). It will be ready for operation sometime in January 2018. As for the rest of its expansion plan, the hospitals that are expected to be opened after KPJ Perlis in FY18-19 would be KPJ Bandar Dato’ Onn (BDO) in Johor, KPJ Kuching, KPJ Miri and expansion of KPJ Sabah.

Going big in Indonesia. Despite the intricacies of operating in the Indonesian market, management of KPJ is planning to expand its footprint in Indonesia in the medium to long term. Management believes that there is still value in Indonesia which is home to 255m population as its gross margins in Indonesia remains high at 45% when compared against gross margins in Malaysia which tend to be in the tune of about 38-40%. Indonesia remains in KPJ’s interest due to its lower labour costs and plenty of underserved areas. Also, by targeting to operate in cities outside of Jakarta which are underserved it will also avoid from competing head-on with Indonesia’s private healthcare service providers such as: Mitra Keluarga Karyasehat (NR) and Siloam Hospitals (NR) in terms of getting medical doctors to practise in the hospital.

Source: MIDF Research - 3 Jan 2018