Posted Date: January 13, 2022
MARC Ratings has assigned a preliminary rating of AA-IS(CG) to Point Zone (M) Sdn Bhd’s proposed Islamic Medium-Term Notes (Sukuk Wakalah) programme of up to RM3.0 billion with a stable outlook. The rating reflects the credit strength of KPJ Healthcare Berhad (KPJ Healthcare) on the basis of a corporate guarantee it will provide on the Sukuk Wakalah programme. Point Zone is a wholly-owned special purpose vehicle of KPJ Healthcare.
The rating is driven by KPJ Healthcare’s leading market position in the Malaysian private healthcare industry in which it has a well-established 40-year track record. These strengths have enabled KPJ Healthcare to generate steady top-line growth and healthy cash flow generation. KPJ Healthcare reported revenue in excess of RM2.0 billion a year, with annual revenue growth of around 7% in the last four years (excluding fiscal 2020 due to the impact of the COVID-19 pandemic). Following the unprecedented setback to healthcare providers due to the pandemic, the performance of the industry has rebounded in 2021. We view defensive demand for healthcare, underpinned by increasing awareness of health-related issues, rising affluence among Malaysians and a growing ageing demography.
The rating is moderated by KPJ Healthcare’s fairly leveraged balance sheet. As at end-September 2021, total debt stood at RM1.8 billion, translating to a debt-to-equity ratio of 0.8x. We estimate KPJ Healthcare’s straight debt to peak at about RM2.2 billion in 2023. However, we view medium-term risks to higher indebtedness as partly mitigated by KPJ Healthcare’s stable organic performance. Under our sensitised case, we forecast cash flow from operations to average around RM430 million per year over the next five years, providing a debt cover of around 0.2x. KPJ Healthcare has strong financial flexibility supported by, inter alia, its listed status (financial market access) as well as availability and size of its unencumbered assets. KPJ Healthcare had RM317.0 million of cash and about RM440 million in banking lines as at end-September 2021.