KUALA LUMPUR: KPJ Healthcare Bhd, the country’s largest listed healthcare group, will spend RM1.5 billion to build 10 hospitals here.

KPJ president and managing director Datuk Amiruddin Abdul Satar said the group will build two hospitals a year over the next five years.

“The investment will be funded by internal funds, borrowings and equity,” he told reporters after the launch of KPJ Tawakkal Health Centre on Jalan Pahang here by Women, Family and Community Development Minister Datuk Seri Rohani Abdul Karim yesterday.

Amiruddin said the group will allocate about RM200 million from proceeds of a private placement and an employees stock option scheme (Esos) exercise recently.

The 10 proposed hospitals will add another 2,000 beds to the group, bringing the total number of beds to 5,000.

KPJ (fundamental: 0.95; valuation: 1.1) currently operates 25 hospitals in Malaysia, two in Indonesia, one in Bangladesh and also holds a 23% stake in Vejthani Hospital in Bangkok, Thailand.

This year, the group is set to open two hospitals in Pahang and Perlis, and is looking to build new ones in Kuching, Sarawak and Seri Manjung, Perak in 2016.

“The average cost of the hospitals is RM100 million each,” said Amiruddin.

He said KPJ’s stock still has an upside potential as its price earnings ratio is currently at 30.91 times earnings compared with IHH Healthcare Bhd’s 63.17 times.

“Demand is always there for healthcare stocks. The demand for healthcare counters is greater in bad times as they are seen as defensive stocks,” he added.

Year-to-date, KPJ’s share price has risen 15.41%, outperforming the FBM KLCI which has declined by 7.07%. The stock closed unchanged at RM4.27 yesterday, giving it a market capitalisation of RM4.43 billion.

Amiruddin expects KPJ to “perform better” for the current financial year ending Dec 31, 2015 (FY15) compared with FY14. 

He is of the view that the hospital business is still lucrative, even though the group is looking to diversify its business as its hospital chain expands.

KPJ saw its net profit rise 12.14% to RM33.89 million in the first quarter ended March 31, 2015 from RM30.22 million a year ago. Revenue was at RM709.89 million, up 17.78%, from RM602.74 million.

Formerly Tawakal Hospital, KPJ Tawakkal Health Centre underwent a major renovation and refurbishment, which cost about RM26 million. It houses several niche services, including an aged care facility, a specialist dental services, a rehabilitation centre, haemodialysis services and eye specialists.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in digitaledge Daily, on August 12, 2015.