KPJ  Seremban  Specialist  Hospital  (SSH)  entered  into  a  SPA  with Al-`Aqar  REIT  for  the  proposed  disposal  of  a  parcel  of  land  in Seremban, Negeri Sembilan. Maintain NEUTRAL with  an  unchanged TP of MYR4.24 (6% upside). The proposed disposal is expected to  facilitate future expansion plans  for  KPJ  SSH  and unlock the value of the land which will translate into a one-off gain of MYR0.62m.

Proposal  details.  On  18  March,  Seremban  Specialist  Hospital  SB (SSHSB),  a wholly-owned subsidiary of KPJ Healthcare  (KPJ),  entered into a sales and purchase agreement (SPA) with AmanahRaya Trustees Bhd,  the  trustee  for  Al-`Aqar  Healthcare  REIT  (AQAR  MK,  NR)  for  a proposed  disposal of a parcel of land in Seremban, Negeri Sembilan for a total cash consideration of MYR4.25m. Subsequently, SSHSB will then enter into a supplemental lease agreement with the Trustee, on behalf of Al-`Aqar  and  Damansara  REIT  Managers  SB  to  lease  the  land  to SSHSB.  The lease will take place upon completion of the disposal  likely in 3Q15.

Details of the land. Measuring approximately 5,644 sq metres, the land is located  in  Pekan  Bukit  Kepayang,  Seremban,  Negeri  Sembilan.  It  is adjacent  to  several  parcels  of  freehold  and  leasehold  land  owned  by Al-`Aqar.  The land is  currently being used as an open-air carpark area for KPJ SSH, with a TNB substation and a refuse storage built on it.

Rationale  for  disposal.  The  disposal  is  to  facilitate  the  completion  of KPJ SSH’s expansion as the land needs to be amalgamated before the certificate  of  completion  and  compliance  (CCC)  can  be  issued. Additionally,  it  is  also  expected  to  facilitate  future  expansion  plans  for KPJ SSH and unlock the value of the land which is expected to translate into  a  one-off  gain  of  MYR0.62m  for  KPJ  upon  completion  of  the disposal.

Forecasts. We make no changes to our forecasts.

NEUTRAL.  Maintain  NEUTRAL  with  an  unchanged  TP  of  MYR4.24, pegged  to  28x  FY15F  EPS,  which  is  in  line  with  its  average  3-year historical P/E.  We believe this is justified, as the proposed disposal will only generate a one-off gain of MYR0.62m and we  believe  all  positives have been priced in at this juncture.

Source: RHB Research - 20 Mar 2015