KUALA LUMPUR: KPJ Healthcare Bhd
's exit from Jeta Gardens, its loss-making aged care business in Australia, could reduce the healthcare group's operating costs and cash flow requirements, moving forward.
RHB Research said it is positive on the sale of the underperforming asset, which involves KPJ forking out a RM2.1mil net cash payment after accounting for differences between the asset sale value and liability to be assumed by the purchaser, DPG Services Pty ltd.
Simultaneously, the owner of the land and buildings of Jeta Gardens, Al-Aqar Australia Pty Ltd, also entered into a land sale contract for a cash consideration of RM74.9mil with Principal Healthcare Finance.
"We are positive on this, given the earnings accretive nature. It also enables KPJ to realign its focus towards its domestic business, in our view.
"Valuation is compelling at 22x 2024F P/E, 0.5SD below its 5-year mean of 33x," said the research firm in a note.
Jeta Gardens registered a net loss of RM20.9mil in 2022.
RHB said the transaction, in the event of successful completion in 2024, would result in potential earnings accretion of 8% based on its 2024 earnings estimate.
According to RHB, the aged care segment in Australia is facing challenging prospects.
The auditors of Jeta Gardens indicated within its independent auditors’ reports for FY21 and FY22 that a material uncertainty arising from the loss after taxation and a net liabilities position could cast significant doubt on Jeta Gardens Group’s ability to continue as a going concern.
"In this respect, KPJ has been providing financial support to Jeta Gardens when necessary to enable Jeta Gardens Group to meet its liabilities as and when due," said RHB.
The research firm maintained its "buy" recommendation on KPJ and target price of RM1.66.
"We still like the stock for its key strategic direction down the road, encouraging health tourism growth, and gradual improvements in operating efficiency with its hospitals’ gestation periods likely to start contributing meaningfully to the group by 2024," it said.
It added that key risks to its recommendation include lower-than-expected patient visits/revenue intensity growth and higher-than-expected operating costs.
