MARC Ratings has affirmed its rating of AA-IS(cg) on Point Zone (M) Sdn Bhd’s (Point Zone) Islamic Medium-Term Notes (Sukuk Wakalah) Programme of up to RM3.0 billion with a stable outlook. Point Zone is a funding vehicle of parent KPJ Healthcare Berhad (KPJ) which has given a corporate guarantee on the Sukuk Wakalah programme. Total outstanding under the sukuk programme currently stands at RM650.0 million.
The rating reflects KPJ’s dominant position with an estimated market share of 26% by bed size, and its long operating track record of over 40 years in the Malaysian private healthcare industry. This has translated to robust cash flow levels and comfortable debt coverages. KPJ has a track record of consistent revenue generation of about RM2.5 billion to RM2.7 billion p.a., and earnings before interest, tax, depreciation and amortisation (EBITDA) margin in the 21%-22% range over the last four fiscal years excluding fiscal 2020 due to the impact of the COVID-19 pandemic.
In 1H2022, KPJ posted revenue of RM1.36 billion and an EBITDA margin of 21.6%, broadly in line with its pre-pandemic performance. We believe long-term demand drivers are intact for private hospital operators, supported by favourable demographics. An ageing population, longer life expectancies, higher health awareness, population growth and affluence, and growing insurance penetration will see demand for healthcare services continue increasing.
Moderating the rating is KPJ’s rather leveraged balance sheet with a debt-to-equity ratio of 0.8x. As at end-June 2022, borrowings stood at around RM1.92 billion, and this is expected to hover around RM2.0 billion to RM2.1 billion in 2022-2027. Nevertheless, we believe the higher debt will be partly supported by KPJ’s stable organic performance. Under our sensitised case, which assumes a moderate average revenue growth of 2% and a lower EBITDA margin of 15%-18% over 2023-2027, we expect cash flow coverage on interest and debt to remain comfortable at around 5.1x-6.9x and 0.25x-0.27x through the forecast period.