Short Position - Listed companies, healthcare valuations, demographic dividend


At the very least, the PLC Transformation Programme sets a framework from which Malaysian listed companies can refer to in order to thrive in the fast changing corporate landscape.

Transforming listed companies

THE newly announced PLC Transformation Programme (PLCTP) may sound like yet another new buzzword created by government officials. But the programme’s intentions and targets are a welcome move.

At the very least, it sets a framework from which Malaysian listed companies can refer to in order to thrive in the fast changing corporate landscape.

The need to improve sustainable, socially responsible and ethical practices cannot be overemphasised.

Becoming digitally-enabled is also crucial to survival today.

While many executives are familiar with these catch-phrases, incorporating such strategies and philosophies into their organisations is a different matter.

This is more so given that companies are now focused on recovering from the onslaught of the Covid-19 pandemic.

Supply-chain bottlenecks and foreign worker shortages are other challenges they face.

How to think about sustainability?

Companies must also be worried if these new initiatives are going to cost them more money at a time when they have to keep a sharp eye out on their cash flows.

Ironically, these are the very reasons why thinking about the tenets highlighted by the PLCT are important, for the future-proofing of these listed companies.

For example, if you are not disposing of your waste in a socially and environmentally responsible way, that act will someday soon come back to haunt you and drive investors and other stakeholders and partners away. It is helpful that the government will be issuing guidebooks that will entail best practices, case studies and benchmarks to help the listed companies reach the stated PLCT goals.

Interestingly, a “digital dashboard” will be created to monitor the efforts of the companies.

It is left to be seen how such data will be collected from the companies.

Also, what happens when companies do not make serious efforts towards the goals?

All eyes will be on Bursa Malaysia, which is tasked with spear heading the five year PLCT programme.

The exchange has a number of options on how to ensure listed companies comply.

Healthcare valuations

NEWS of a possible buyout of KPJ Healthcare Bhd is not entirely surprising.

Although KPJ has told the exchange that it has not received any notification for a privatisation proposal from any party to date, that does not mean that plans had been afoot for such a deal.

After all, healthcare companies are the rage following the pandemic due to a rising need for private healthcare.

Whatever the case, as it stands now, KPJ can seem very attractive to potential buyers.

Going by one analyst’s estimates, KPJ is expected to have earnings before interest, tax, depreciation and amortisation (Ebitda) of about RM528.2mil this year.

At its current market value of RM5.1bil, this means that the stock is trading at only 9.6 times its Ebitda.

Buying the company at around this price can be considered a steal, when compared with other healthcare groups.

For example, when IHH Healthcare Bhd (IHH) listed in 2012, it was able to price itself at 18 times its Ebitda.

Hospital valuations are on an uptrend.

Months ago, a 16% stake in Sunway Healthcare was sold to the Singaporean government through GIC (Ventures) at a very high value.

RHB Research had pointed out that the implied enterprise value to Ebitda multiple for the transaction was at 31.33 times, based on the trailing 12-month Ebitda of RM130mil for Sunway Healthcare.

This was at a substantial premium compared with 19.08 times for IHH and 13.85 times for KPJ Healthcare, the research house had pointed out.

Even if the offerors for KPJ made a bid of RM5.4bil as recently reported, that still works out to a price that does seem to undervalue KPJ, in terms of Ebitda.

That said, KPJ isn’t very favoured by analysts as most have a “hold” call on the stock. This is due the group missing earnings estimates and having a long gestation for its new hospitals.

The demographic dividend

FOR the longest time, economies have seen growth for a number of reason, chief among them is the growth in population size.

As the number of people grow, that will lead to an increase in output and size of the economy, if a country is well-managed.

That has been the case in a number of countries, including Malaysia.

And as the size of a population grows, there will be greater demand for a multitude of goods and services.

Along the way, the financial industry will see strong growth, housing will benefit from the jump in the number of people in a country and companies making consumer goods too, will benefit from a large consumer base.There is a lot of good, commercially, that comes along with a growing population.

That is why previous policies limiting the number of children in families in countries like China and Singapore have been reversed.Ironically, progress has seen a drop in the birth rates of countries.

It does look like once there is progress on per capita income, the birthrate of people in a country will drop, and that will lead to big challenges in the decades ahead.

Reversing a decline in the fertility rate below the replacement rate can spell trouble for many economies.

Invariably, the drop in fertility rate will mean there will be fewer citizens in a country.

The implications of that on economies have yet to be quantified extensively in peace time but it can lead to a drop in many goods and services we have taken for granted in the decades prior to the period of widespread declines in the fertility rate.

For Malaysia, the country’s total fertility rate among women of reproductive age fell to 1.7 babies last year.

That will mean, in a matter of time, there will be more older than younger people in the country, which will then pose issues for tax rates, medical cost and overall productivity of a country with a greying population.

Maybe it is time for Malaysia to reconsider its immigration policies given that the country is a magnet for immigrants from poorer countries in this region.

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