KUALA LUMPUR: RHB research is positive on the disposal of KPJ Healthcare Bhd's loss-making aged care business, Jeta Gardens, in Australia, suggesting that it could increase earnings estimate for 2024 by eight per cent.
"We are positive on the disposal of the Jeta Gardens business given that, by removing the underperforming asset, KPJ can reduce its operating costs and cash flow requirements," the firm said in its note today.
Jeta Gardens registered a net loss of RM20.9 million in 2022.
KPJ Healthcare announced it was selling its 57.2 per cent-owned Jeta Gardens to DPG Services Pty Ltd yesterday, in a related party transaction.
The disposal involves KPJ forking out a RM2.1 million net cash payment (after accounting for differences between asset sale value and liability to be assumed by the purchaser) to DPG.
Simultaneously, the land and buildings owner of Jeta Gardens – Al-Aqar Australia – also entered into a land sale contract for RM74.9 million to Principal Healthcare Finance.
RHB research has a "Buy" call on KPJ with a target price of RM1.66.
"We still like the stock for its key strategic direction down the road, encouraging health tourism growth, and gradual improvements in operating efficiency with its hospitals' gestation periods likely to start contributing meaningfully to the group by 2024," the research firm said.
Key risks to its rating on the stock include lower-than-expected patient visits/revenue intensity growth and higher-than-expected operating costs.