KPJ Healthcare Bhd is expected to navigate a more challenging operating landscape from July 2025 onwards, following the impending expansion of Malaysia’s Sales and Service Tax (SST), which is poised to elevate rental and medical tourism-related costs.
In a client note, MIDF Research highlighted the recent asset injection by KPJ involving two hospital properties a 15-storey facility at KPJ Ampang Puteri and a 10-storey building at KPJ Penang into Al-‘Aqar Healthcare REIT, with a combined transaction value of RM241 million.
Under the terms of the agreement, KPJ will lease the Ampang Puteri hospital for 11 years and the Penang hospital for 15 years. Both leases include a 2% annual rental escalation and an option for a 15-year extension.
MIDF Research noted that the base rental for the two assets will amount to approximately RM15 million in 2025. With the SST implementation, this is projected to increase to RM16 million. Although contracts executed prior to the SST’s effective date will enjoy a one-year exemption, rental costs are anticipated to climb to nearly RM17 million in 2026, and further escalate to RM22 million by 2040.
The brokerage also underscored that KPJ has previously transferred 19 of its 30 hospitals to Al-‘Aqar. Excluding the latest additions, lease payments for 2024 are expected to surpass RM107 million.
Proceeds from the sale-and-leaseback deal — RM100 million allocated for debt repayment and RM139 million earmarked for working capital — are expected to provide short-term financial flexibility. MIDF believes this capital deployment will help KPJ manage the impact of economic headwinds and policy shifts.
However, the implications for KPJ’s medical tourism segment could be more pronounced. With between 9% and 12% of the group’s revenue derived from international patients, the SST is estimated to add RM24 million to RM32 million in annual tax expenses. This may erode KPJ’s cost competitiveness relative to both domestic and regional peers and heighten consumer price sensitivity.
Consequently, MIDF Research has revised its earnings forecast for the financial years 2025 to 2027 downwards by 1%. Its target price for KPJ stock has been adjusted from RM3.02 to RM3.00, based on a price-to-earnings ratio of 28.8 times and an updated estimated earnings per share of 10.4 sen.
Despite the projected increase in operating costs, the research house maintains a ‘neutral’ stance on KPJ, citing the overall minimal impact of the SST on the group’s earnings outlook.
-The Star
