MARC Ratings has upgraded its rating on Point Zone (M) Sdn Bhd’s Sukuk Wakalah Programme to AAIS(cg) from AA-IS(cg) and accordingly revised the rating outlook to stable from positive. The rating reflects the credit strength of Point Zone’s parent KPJ Healthcare Berhad (KPJ) which has provided an unconditional and irrevocable guarantee on the sukuk programme.
The upgrade reflects KPJ’s sustained improvement in operating performance as underlined by stronger operating margins and cash flow generation. KPJ, which has an entrenched position in Malaysia’s healthcare industry, has been steadily recording higher inpatient admissions and surgery volumes over the years; this growth was robust in the last two fiscal years. Revenue grew by 17.2% y-o-y to RM3.4 billion while earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 17% y-o-y to RM838 million in 2023. Based on 1H2024 performance, MARC Ratings projects KPJ to achieve a further 8% y-o-y growth in revenue and a 3% y-o-y increase in EBITDA. The strong growth prospects of the healthcare industry driven by an ageing population, rising affluence and healthcare awareness, and increasing non-communicable diseases would remain supportive of KPJ’s earnings trajectory.
The rating agency notes that KPJ has no significant capex with the focus remaining on routine replacement and upgrades, and bed expansion at existing hospitals. Accordingly, KPJ’s leverage as reflected by a gross debt-to-equity (DE) ratio of 0.72x as at end-June 2024 (net DE ratio: 0.43x) would continue to decline over the medium term; borrowings are forecast to reduce from around RM1.9 billion to around RM1.3 billion by 2028. KPJ had close to RM750 million in cash as of end-1H2024. MARC Ratings expects cash flow from operations interest coverage ratio at about 9.0x and debt coverage ratio at around 0.3x for 2024.