This article first appeared in The Edge Malaysia Weekly on November 28, 2022 - December 4, 2022

DEC 7 marks three months since the departure of Datuk Mohd Shukrie Mohd Salleh from KPJ Healthcare Bhd — he was managing director (MD) for just five months — but his replacement is yet to be found. Now, there is expectation of a revamp in the management of the healthcare group, of which Johor Corp (JCorp) is the largest shareholder with 45.22%.

The Edge had reported, quoting sources, on Sept 12 that Hazman Hilmi Sallahuddin, chief investment officer (CIO) of Kumpulan Wang Persaraan (Diperbadankan) (KWAP), could be poached to helm the country’s largest private hospital operator. The report was neither denied nor confirmed by KPJ.

When contacted for an update on efforts to fill the position and the speculated revamp, JCorp says the appointment of the president and MD goes through “a robust governance process” involving the healthcare group’s board and “not any one shareholder”.

“As such, it would be poor corporate governance if the appointment of the president and managing director at KPJ was solely to be decided by JCorp,” it says.

JCorp notes that as a major investor in KPJ, “JCorp is committed to the highest standards of corporate governance for all its investments and investee companies.”

“Should there be any pertinent announcements to be made, it will be done according to disclosure requirements by the listed entity,” it adds.

A request to KPJ for comment on its search for a new president and MD did not yield any results.

Note that the position of chief operating officer is also vacant following the departure of Suriaghandi Suppiah in July after eight months. He was previously KPJ’s chief transformation officer, a position he held for slightly over a year.

It is understood that under the management revamp, at least two key appointments could be made.

Whoever takes up the position of president and MD will have to manage the expectations of largest shareholder JCorp, which is said to be looking at raising the value of its investments. As at April 11, 2022, apart from JCorp’s 45.22% equity interest in KPJ, the other major shareholders are the Employees Provident Fund (12.17%), Waqaf An-Nur Corp Bhd (7.1%) and KWAP (5.41%).

Waqaf An-Nur is a not-for-profit company set up to manage shares and assets entrusted to it by JCorp.

Sources said a new MD at KPJ should be revealed soon, some said after the Nov 19 general election (GE15), and another said at the latest by the first quarter of 2023.

The changing of the guard will be KPJ’s third in recent years. Over the past two years, it has seen two MDs come and go — Shukrie and Ahmad Shahizam Mohd Shariff.

Ahmad Shahizam helmed KPJ from July 2020 to March 2022. He was CEO of Pantai Holdings Bhd from July 2014 to June 2017 and chief corporate officer of IHH Healthcare Bhd from July to December 2017.

He is now a director at Invoke, a big data analytics outfit founded by PKR politician Rafizi Ramli, who won the Pandan parliamentary seat in GE15.

Prior to Ahmad Shahizam’s tenure, Datuk Amiruddin Abdul Satar had served as president and MD from Jan 1, 2013, until July 1, 2020.

Having two MDs leaving within a short time doesn’t bode well for KPJ, which is a listed company with investors who would want to know its long-term plan and more so as its major shareholder is JCorp, a state government entity that has yet to realise the full potential of its investment in the healthcare group.

Apart from managing JCorp’s expectations, the new MD will have to address KPJ’s lack of a clear direction and strategy in the private healthcare industry.

“I’m struggling to like it even though it is in a good industry,” says an analyst who points out that the many changes in the senior management at KPJ have hobbled the healthcare player in executing a strategy to rebrand itself and strengthen its position among the country’s private healthcare providers.

He adds that with the exception of KPJ Damansara Specialist Hospital and KPJ Ipoh Specialist Hospital, the group’s stable of hospitals are mainly neighbourhood hospitals without “star” specialists who can draw in the patients.

“A hospital is like a mall, you need to have the right names; for hospitals, it’s doctors. In my view, KPJ is struggling to find its footing in the healthcare industry, which looks promising given the rising level of medical insurance coverage and, within this space, patients are going upmarket,” he explains.

While it is doing well as a healthcare group with a stable of community hospitals, KPJ hasn’t been making headway in “rebranding and moving to the next level”, adds the analyst.

This year, KPJ just added Damansara Specialist Hospital 2 (DSH2) to its 28 hospitals in Malaysia.

According to its 2021 annual report, KPJ has 3,626 hospital beds, of which 3,376 are in Malaysia, 170 in Indonesia and 80 in Bangladesh.

In Malaysia, it also operates two ambulatory care centres, one university college, four senior and assisted living care centres, 17 Klinik Waqaf An-Nur and six mobile clinics.

KPJ is overwhelmingly favoured by 11 analysts who have “buy” calls on its stock compared to four “hold” and no “sell” recommendations. Their consensus target price for the counter is RM1.06, or a 9.3% upside from Friday’s closing price of 97 sen, valuing the group at RM4.2 billion.

For its third quarter ended Sept 30, 2022 (3QFY2022), KPJ reported an impressive set of results. The quarter’s net profit of RM54.3 million is four times the RM12.64 million obtained in 3QFY2021 as the group benefited from a 16% year-on-year increase in patient visits and bed occupancy rate (BOR) at 64% (3QFY2021: 43%).

The opening of DSH2 on Sept 1 has also started to contribute to KPJ’s quarterly performance, the group said in its financial statements released on Nov 23.

For its Malaysian operations, revenue for 3QFY2022 rose 17% y-o-y to RM775.2 million, contributing to the 40% increase in the group’s earnings before interest, taxes, depreciation and amortisation (Ebitda) to RM210 million.

“Total patient visits for the quarter is reported at 17% higher to 836,377 patients against 714,321 patients in 3QFY2021. BOR recorded higher utilisation at 66% (Q3 2021: 44%) and the number of surgeries performed was also higher by 4,333 procedures, while the inpatient days were higher by 61% compared to 3Q2021,” KPJ commented on its Malaysian operations.

CGS-CIMB Research, which has an “add” call on KPJ, says of its 3QFY2022 results: “Notably, patient volumes and BOR have surpassed even 1QFY2020 levels (pre-pandemic), possibly due to robust underlying demand and pent-up demand from patients who had deferred surgeries during the various Covid-19 lockdowns.”

The results beat many analysts’ expectations and so did the dividend per share (DPS) of 0.55 sen for the quarter, bringing total DPS to 1 sen for the nine-month period.

KPJ made the news in October last year for a potential privatisation by JCorp and private equity fund TPG in a deal valuing it at RM5.4 billion. However, the deal did not materialise over differences over its valuation and which party would have more control.

TPG had in September 2019 acquired the Columbia Asia Hospital chain together with the Hong Leong group for US$1.2 billion. Columbia Asia has 19 medical facilities across Southeast Asia — 13 in Malaysia, and three each in Vietnam and Indonesia.

It is understood that TPG’s longer-term plan at the time was to put Columbia Asia and KPJ together for an eventual initial public offering. However, this was not meant to be.

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