KPJ’s balance sheet to improve with shelving of three upcoming greenfield hospitals

KPJ's Pasir Gudang Specialist Hospital

PETALING JAYA: KPJ Healthcare Bhd’s move to shelve three upcoming greenfield hospitals will help improve the company’s highly geared balance sheet, according to UOB Kay Hian Research.

The research house on Wednesday said while the slower greenfield expansion could derail KPJ’s patient and capacity growth trajectory, it understand from management that the shortfall could be mitigated through a slew of less capital-intensive expansion in brownfield hospitals.

“Management had noted that the quicker turnaround period and relatively lower capex requirements for some of its mature brownfield hospitals would help the group conserve resources. 

“All in all, we deem the pushback in some of its greenfield hospitals (which have a longer gestation of 3-5 years) and the focus on brownfield expansion will help reduce the strain on KPJ’s highly geared balance sheet (0.75x as at end-Mar 17) while helping the group achieve its targeted bottom-line growth of 10-15% annually,’’ it noted.

To better cope with the current operating landscape, KPJ has adopted a more accommodative stance to its expansion plans by shelving three upcoming greenfield hospitals (UTM, Nilai, Bayuemas) for now. 

The brokerage gathered that expansion plans for the rest of the hospitals are on track with the scheduled opening of the Perlis Specialist Hospital in the fourth quarter of this year (Q4 17) and three more hospital openings in Kuching, Miri and Bandar Dato Onn in Q1 18, Q2 18 and Q3 18
respectively.

On a separate note, UOB Kay Hian expect patient traffic to rise over the next two quarters (on improved demand from cash-paying patients),
judging from the recent recovery in both inpatient (+7.6% quarter-on-quarter (q-o-q) and outpatient traffic (+2.7% q-o-q) in Q1 17.

The healthcare sector had, over the last two years, been impacted by headwinds arising from the GST implementation, higher cost of drugs
amid the weakening ringgit against the US dollar, and weak consumer sentiment, which affected demand from cash-paying patients. 

These had negative impact on KPJ’s operations with inpatient traffic remaining flat y-o-y (2014: 281,000, 2015: 279,000, 2016: 279,000) while outpatient traffic posted a decline (2014: 2.53mil, 2015: 2.48mil, 2016: 2.47mil) since 2014. 

Coupled with the ongoing expansion, occupancy rates dipped to 68% and 66% in 2016 and 2016 respectively (2014: 69%), the research house added.