RAM Ratings reaffirms AA3(s)/P1(s) ratings of debt issue by KPJ Healthcare Berhad’s SPV

Published on 30 May 2013

RAM Ratings has reaffirmed the respective long- and short-term ratings of AA3(s) and P1(s) for Point Zone (M) Sdn Bhd’s (“Point Zone”) RM500 million Islamic Commercial Papers/Medium-Term Notes Programme (2011/2018) (“ICP/IMTN”); the long-term rating has a stable outlook.

Point Zone is a special-purpose vehicle set up as a wholly-owned subsidiary of KPJ Healthcare Berhad (“KPJ” or “the Group”) to undertake the issuance of the ICP/IMTN. KPJ is an investment-holding company with subsidiaries engaged in the operation of hospitals and the provision of healthcare services. The enhanced ratings are premised on an unconditional and irrevocable corporate guarantee from KPJ and as such are based on the credit profile of the Group.

  

KPJ’s credit profile is supported by its position as Malaysia’s leading private healthcare provider, its sturdy operations and cashflow, strong liquidity profile and financial flexibility, as well as steady demand for healthcare services. The Group’s position as Malaysia’s largest group of private hospitals, with a 18.8% market share (by bed count) in 2012, remains unrivalled. Its admission and outpatient volumes recorded respective compounded annual growth rates (“CAGR”) of 7.1% and 6.9% over the past 5 years to FY 31 Dec 2012. KPJ’s operating profit before depreciation, interest and tax charted a CAGR of 11.6% over the same period, while its adjusted funds from operations debt cover has consistently ranged between 0.19 times and 0.22 times. As at end-December 2012, the Group’s short term debt came up to RM206.83 million, which is sufficiently covered by its cash reserves of RM217.58 million as well as RM150 million remaining undrawn from the ICP/IMTN Programme. Meanwhile, growth prospects for the local healthcare industry remain encouraging in view of increasing awareness of proper healthcare, rising affluence among Malaysians and a growing ageing population.

Offsetting the abovesaid strengths is KPJ’s aggressive expansion, which has resulted in a highly-leveraged financial profile. The Group’s lease-adjusted debt level rose from RM1.23 billion as at end-December 2011 to RM1.36 billion as at end-December 2012. Nevertheless, its adjusted gearing ratio remained unchanged at 1.23 times due to an enlarged equity base. “Looking ahead, KPJ’s adjusted gearing ratio is expected to rise to a high level of about 1.3 to 1.4 times over the next 3 years following the expansion of its hospital network,” says Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. “We understand that the Group remains open to growth opportunities and may continue expanding its hospital network. Under the circumstances, we maintain a cautious view of the potential impact of further debt-funded expansions on KPJ’s balance sheet and debt-protection measures,” Lim adds.

Elsewhere, KPJ remains exposed to persistent cost increases such as higher staff salaries and more expensive medical supplies and pharmaceuticals. We do not, however, expect these cost increases to exert overwhelming pressure on the Group’s financial profile at this juncture, as the lack of a standardised fee schedule for pharmaceuticals and medical supplies charged by private hospitals allows for some pricing flexibility. Nevertheless, we note that the healthcare industry and KPJ are still subject to regulatory controls, which may evolve over time.

Media contact

Carol Pang

(603) 7628 1076

carol@ram.com.my