Berita & Acara

BERITA | 3rd April 2024

TDM’s healthcare business in focus

THE disposal of Ramsay Sime Darby Health Care Sdn Bhd (RSDH) to Columbia Asia Healthcare Sdn Bhd for RM5.7 billion cash late last year has set a new benchmark for the valuation of private hospital operators in Malaysia while generating investor interest in similar players, including TDM Bhd.

Majority owned by the Terengganu government, the plantation and healthcare group has seen its share price rally by close to 40% year to date to last Thursday’s close of 25.5 sen a share, valuing the group at RM439.3 million.

In the past, there was talk of a spin-off of the healthcare business held under wholly-owned KMI Healthcare Sdn Bhd. Is the plan back on the table?

“There is an option for KMI Healthcare to stay private or to go for listing. However, as a matter of policy, we do not comment on speculative matters or ongoing discussions.

“Our focus remains on exploring various strategic options to support our growth and create value for our stakeholders. Currently, we have nothing specific to announce, and our focus remains on our core business operations,” KMI Healthcare CEO Dr Rayney Azmi Ali tells The Edge.

KMI Healthcare operates five hospitals in Taman Desa and Kelana Jaya in the Klang Valley, and Kuantan and Kuala Terengganu on the peninsula’s east coast, as well as Tawau in Sabah.

For its financial year ended Dec 31, 2023 (FY2023), TDM’s healthcare business has overtaken plantation as the bigger earnings contributor, registering a profit before tax of RM31.29 million compared with RM14.06 million.

According to Rayney, a medical doctor by training, the group is focused on expanding the healthcare business through greenfield and brownfield development, which includes the recent acquisition of Hospital Bersalin Razif, a 35-bed maternity hospital in Klang, Selangor, and the development of a 100-bed hospital in Chukai, Terengganu, which is expected to be completed in 2028.

The group has also outlined its Vision 2027 strategic business plan, which among others, envisions a profit after tax (PAT) of RM32 million, with a PAT margin of 4% and 880-bed capacity across its hospitals.

These will be achieved by handling 84,028 inpatients and 652,740 outpatients by 2027, says Rayney in a response to The Edge’s questions.

TDM undervalued?

At RM5.7 billion, RSDH is valued at an enterprise multiple (enterprise value [EV]/earnings before interest, taxes, depreciation and amortisation [Ebitda]) of 20.1 times, which is higher than the current EV/Ebitda of listed private hospital operators KPJ Healthcare Bhd’s 14.17 times and IHH Healthcare Bhd’s 11.28 times.

Thanks to the RSDH deal, analysts covering Sunway Bhd have raised the EV/Ebitda multiple for Sunway Healthcare Group (SHG), which is slated to be listed on Bursa Malaysia by 2024, to between 20 and 24 times. 

It is worth noting that year to date, Sunway’s share price has risen 70.42% to Thursday’s closing price of RM3.47. 

TDM’s KMI Healthcare, with 419 beds, is much smaller than SHG and RSDH — both operate at least three times the number of beds and registered Ebitda in the RM300 million mark.

What would be a fair EV/Ebitda multiple for KMI Healthcare? Taking a third of the 20 times on which RSDH was sold, or seven times, KMI Healthcare is valued at about RM365 million based on its latest reported Ebitda of RM52.1 million.

Based on TDM’s market cap of RM430.89 million and KMI Healthcare’s valuation of about RM365 million, this would mean the market has ascribed only RM65.89 million for the plantation segment. At an EV/Ebitda of eight times, the plantation business is almost free.

TDM develops and manages 13 oil palm estates and two palm oil mills in Terengganu. Its planted land bank measures 28,479ha, out of a total hectarage of 41,197.6ha.

It is in the process of selling its plantation assets in Indonesia.

In FY2023, TDM registered an average crude palm oil (CPO) price of RM3,939, some 21% lower than the year before. It produced 59,419 tonnes of CPO while its mills achieved an oil extraction rate of 19.93% compared with 19.21% in FY2022.  

Affin Hwang Investment Bank valued KPJ  at 11 times EV/Ebitda and IHH at 15 times.

Note the divergence in EV/Ebitda multiples ascribed on SHG and RSDH with those of KPJ and IHH. While the companies which are part of a larger group are valued at more than 20 times EV/Ebitda, KPJ and IHH are valued in the teens.

“Differences in valuations could be attributed to various factors such as hospital size, geographical and target market exposure. Furthermore, SHG is undergoing its growth phase and as such is typically ascribed a higher multiple.

“The divergence of valuation ascribed on SHG, I believe, is primarily due to it still being in its growth stage as it’s in the midst of ramping up hospital capacity for its potential IPO listing,” Andrew Lim, associate director of equity research at Affin Hwang IB, tells The Edge. “The valuations would subsequently normalise once operations have undergone their gestation periods.

“Furthermore, Sunway has been known to have a fast turnaround in its hospital operations, with SMC Velocity being a prime example as it was able to turn profitable in less than two years after its opening.”

The divergence in valuations between SHG and KPJ is also due to their target markets, adds Lim.

SHG’s Ebitda margin is higher than KPJ’s in FY2023, as the bulk of its earnings are currently derived from its main hospital in Sunway City, as opposed to KPJ, which has a wide geographical exposure, he says.

SHG recorded an Ebitda margin of 26% in FY2023, while KPJ reported 21.3%. KMI Healthcare, meanwhile, has a much lower Ebitda margin of 15.6% in FY2023, probably due to its concentration in lower-tier cities or urban areas. 

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