PETALING JAYA: Sunway Healthcare Holdings Bhd’s joint-venture (JV) model to expand its hospital network allows it to share upfront capital requirements with its property partner while leveraging the latter’s development expertise, says BIMB Securities Research.
On Oct 21, its wholly-owned subsidiary Sunway Healthcare Ventures Sdn Bhd formalised a 60:40 JV with Putrajaya Holdings Sdn Bhd to develop a 325-bed private hospital in Putrajaya.
The hospital will be built on a 2.5-acre freehold site in Precinct 7, adjacent to Putrajaya Sentral.
The hospital, named Sunway Medical Centre Putrajaya, is targeted to begin construction in the fourth quarter of 2027, with completion expected in 2031.
BIMB Research said the hospital marked Sunway Healthcare’s first JV for a hospital project since its listing, as outlined in its initial public offering prospectus.
“We view the JV positively as it strengthens Sunway Healthcare’s presence across Putrajaya and Southern Klang Valley while leveraging Putrajaya Holdings’ development expertise and sharing upfront capital requirements,” it said.
Under the arrangement, the JV company will own and develop the hospital before leasing it to Sunway Healthcare’s operating subsidiary under a 15-year triple-net lease.
BIMB Research said the JV is targeting a debt-to-equity ratio of 60:40.
The JV will acquire the freehold site for RM40mil, or about RM367 per sq ft, which BIMB Research said appeared “reasonably and fairly priced” against the recent acquisition of a similarly sized freehold parcel within Putrajaya Sentral at RM350 per sq ft.
BIMB Research said initial annual rental is fixed at 5.5% of gross development costs, with annual increases of 2.5% from the second to the fifth lease anniversaries.
From the sixth year onwards, it said rental will be reviewed based on market rates, subject to increases capped at 2.5%.
“At an illustrative RM500mil development cost, annual rental could amount to RM27.5mil or RM2.3mil a month before escalation,” BIMB Research said.
“Importantly, the agreement also includes put/call options, generally exercisable from the third year of lease commencement, allowing Sunway Healthcare to acquire Putrajaya Holdings’ 40% stake, or Putrajaya Holdings to require Sunway Healthcare to purchase it.”
BIMB Research said the buyout value would generally be based on the higher side of a valuation derived from an agreed project internal rate of return or the market value of the property, adjusted for the JV’s financial position.
Separately, Hong Leong Investment Bank (HLIB) Research said the new hospital could tap an underserved market.
“Based on our channel checks, there are currently no private hospitals in Putrajaya, while the existing public hospital is rather crowded. This presents a potential market opportunity for Sunway Medical,” it noted.
It said the project was consistent with Sunway Medical’s strategy of expanding its tertiary hospital network and broadening its geographical footprint.
HLIB Research kept its earnings forecasts unchanged, as contributions from the greenfield hospital were expected beyond its financial year 2026 to 2028 forecast horizon. It also maintained its “hold” recommendation and RM2.05 target price.
BIMB Research, meanwhile, maintained a “hold” recommendation on Sunway Healthcare with an unchanged target price of RM1.90, leaving its earnings forecasts unchanged as the project was already incorporated into the group’s expansion pipeline.
“We view the development positively from a strategic standpoint, although earnings contribution remains distant, with project completion only targeted for 2031,” it said.
Sunway Healthcare operates five hospitals with nearly 2,000 licensed beds and around 80 specialties and subspecialties.
Its expansion plans include tertiary hospitals in Putrajaya, Iskandar Puteri in Johor and Seremban in Negri Sembilan, which are expected to bring the group’s combined hospital capacity to more than 3,400 beds by 2032.
