This article first appeared in The Edge Financial Daily on December 13, 2017 - December 19, 2017

KPJ Healthcare Bhd
(Dec 12, 92.5 sen)
Upgrade to buy with an unchanged target price of RM1.06: KPJ Healthcare Bhd announced that it had entered into a sale and purchase agreement (SPA) via its wholly-owned subsidiary Selangor Specialist Hospital (SGSH) to dispose of a five-storey car park block together with a half basement level and an open roof level of KPJ Selangor Specialist Hospital with Al-Aqar REIT for a purchase consideration of RM13 million.

The car park block to be disposed of by SGSH consists of 286 car park and 83 motorcycle bays located within KPJ Selangor Specialist Hospital. The disposal excludes the consultant office suite, which was completed recently. The purchase price of the car park block, which received the certificate of completion and compliance in 2012, was arrived after the land was professionally valued at RM13 million. KPJ expects to complete the transaction within six months from the date the SPA is signed.

Our check with the management reveals that KPJ intends to use the proceeds from the disposal of the car park 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.

We understand from management that there will be gradual asset injections into Al-Aqar from 2018, starting with its brownfield expansion. We were also made to understand that KPJ Selangor’s consultant office suite will be injected once it has maximised its investment tax allowance, 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. — MIDF Research, Dec 12