Tuesday, February 16, 2010

A Major Boost To Local Healthcare Industry

NST: Hospitals in Malaysia are expected to benefit from the Singapore government's ruling which enables its provident fund contribution to be used for medical treatment abroad.

It is understood that at least 12 hospitals in Malaysia under two hospital groups will benefit from this relaxation as more seek treatment across the causeway. The Singapore Ministry of Health on Wednesday announced that from March 1 2010, its residents can use their Medisave, equivalent to Malaysia's Account 2 in the Employees Provident Fund, to help pay for their hospitalisation abroad.

Medisave usage will be extended to hospitalisation and day surgery. However, outpatient treatment is excluded. Prior to this, the use of Medisave abroad was strict and could only be used for emergencies. The overseas hospital must also have an approved working arrangement with a Medisave accredited institution/referral centre in Singapore and patients must be referred through these centres.

The scheme will start with two providers - Health Management International (HMI) and Parkway Holdings Pte Ltd. HMI will work with Mahkota Medical Centre in Malacca and Regency Specialist Hospital in Johor while Parkway will partner nine hospitals under the Pantai Group and the Gleneagles Intan Medical Centre in Kuala Lumpur.

HMI group executive director Francis Lim Poon Thoo when contacted said that both its hospitals in Malaysia can expect long-term benefits from this liberalisation.

"The cost of procedure and stay at a six-bedded ward in a government restructured hospital in Singapore can be the same as paying the same procedure in a single-bedded room in a private hospital in Malaysia for a single room in a private hospital," Lim said.

This will also provide an opportunity for Malaysian doctors to treat Singapore patients which is a reverse of what is happening now.

Regency Specialist is under Mahkota Medical Group, which also operates the Mahkota Medical Centre in Malacca. HMI holds 48.95 per cent of the group, while Bumiputera-owned Maju Medik Sdn Bhd owns 38.42 per cent and the remaining 12.36 per cent is held by local doctors.

Lim, who is also the chief executive officer of Mahkota, expects group revenue to grow by 20 per cent in 2011 following this ruling. It is aiming for RM150 million revenue in the year ending June 30 2010.

Meanwhile, Pantai Holdings Bhd is wholly owned by Pantai Irama Ventures Sdn Bhd, which in turn is 60 per cent held by Khazanah Nasional Bhd and 40 per cent by Singapore's Parkway Holdings Ltd. Khazanah also has a 24 per cent stake in Parkway. Pantai Holdings chairman Tan Sri Mohamed Khatib Abdul Hamid said its cooperation with Parkway complies with the conditions set by the Singapore government and is a natural extension of the existing synergy between the two organisations.

Nia Ramadhani

Comment: So where does this leave KPJ, being the largest local player. Surely they will not be left out of the equation. This gives the earlier rumour that KPJ may be placing out new shares to a new strategic shareholder, more credibility. Medical tourism now accounts for only 4% of group revenue, but management is optimistic of expanding the business with support from govt initiatives. Currently only three of its hospitals are involved in medical tourism — Klang Valley, Kuching and Johor. It would be beneficial to both sides if KPJ places a substantial amount of new shares to Parkway or Pantai Holdings.

It makes a lot of sense if Parkway or Pantai were to maintain its grip on the region's healthcare industry. KPJ is a jewel to any regional player. KPJ aims to ride on robust domestic demand by adding 2 hospitals per year to its existing network of 19 in Malaysia. In the Private Healthcare Facilities & Services Act, which took effect in May 2006, limits competition with zoning — ie, new private hospitals are not to be built within a certain radius from each other. In this regard, KPJ has been actively procuring new projects to establish the first mover advantage.

It will also bring about a much better valuation for KPJ as its trading at just 13x 2010 PER while Parkway is at 20x. Even Bangkok Dusit and Raffles Medical are at 16x and 18x 2010 earnings respectively. What gives? Especially when you consider that KPJ is still a huge growth stock. The more respectable EV / ebitda for 2010 shows the same undervaluation: Parkway at 15.5x and Raffles Medical at 14.2x, while KPJ is at 9.2x. It makes a lot of sense to buy "cheaper earnings" into your books for Pantai or Parkway. KPJ may even get away with issuing new shares to them at a premium.

No matter how you look at the news flow, KPJ is still very much a value play and a long term investment.

p/s photos: Nia Ramadhani

No comments: