KPJ to dispose of Hospital Penawar
KUCHING: KPJ Healthcare Bhd ( KPJ) has entered into a sale and purchase agreement (SPA) detailling the disposal of its 30 per cent equity stake in Hospital Penawar.
In a recent filing with Bursa Malaysia, KPJ announced that it has entered into a SPA with Dr Mohd Adnan Sulaiman and Azizan Sulaiman for the disposal of its 30 per cent equity stake in Hospital Penawar located in Johor Bahru.
The disposal will involve the sale of 720,000 shares for a total cash consideration of RM2.21 million to Adnan and Azizan, who are both major stakeholders of Hospital Penawar, holding a combined 70 per cent equity stake in the Hospital.
Should the SPA is successful, it is expected that RM2.21 million proceeds will be utilised by KPJ’s wholly- owned subsidiary, KPJ Sdn Bhd ( KPJSB) for its working capital requirement, and or general corporate purposes.
The rationale for this proposed disposal was that it would allow for the consolidation of the KPJ group of hospitals whereby operations will be under a single entity for various operational, financial, and corporate structure efficiency reasons; it is also believed that the single entity model will lead to operational efficiency and value creation.
Additionally, the disposal will also allow KPJ to focus more on its wholly-owned companies such as KPJ for better management and decision making.
This push for an overall improvement in organisational efficiency and value creation comes has come at a timely juncture, as KPJ’s recently release third quarter 2016 (3Q16) financial results have not been promising.
KPJ’s net profit for the first nine months of 2016 (9M16) were below expectations, accounting for only 68 per cent of consensus full year estimates.
The research arm of Affin Hwang Investment Bank Bhd (Affin Hwang Capital) opines that this decrease in net profit was mainly due to lower earnings contribution from KPJ’s Malaysian operation as patient volume in 3Q16 remains weak with outpatient numbers experiencing a one per cent decrease year over year ( yo-y), and inpatient numbers experiencing no change y- o-y.
Moreover, the research arm reported that KPJ’s core net profit of RM32.5 million saw a decrease of 15 per cent y- o-y and a result of the increase in depreciation and finance costs from its newly opened hospitals, such and KPJ Sabah and KPJ Pahang.
Additionally, there will be a lot on KPJ’s plate in future quarters due to the upcoming maturity of KPJ hospitals which were opened in 2014 and 2015, and an expected strong increase in private healthcare market ( Malaysia’s aged population had a compound annual growth rate (CAGR) of 3.8 per cent in 1980 to 2015).
In light of this, the research arm of Midf Amanah Investment Bank Bhd ( MIDF Research) confers with KPJ’s rationale for the disposal of Hospital Penawar, believing that the move will be in the best interest of KPJ, as it will allow them more focus on other projects and to gear up for increased organisational efficiencies and core competencies.