IHH Healthcare unit to buy freehold land, private hospital in Manjung

IHH Healthcare Bhd (Jan 31, RM6.30)

Maintain neutral call with an unchanged target price of RM6.58: IHH Healthcare Bhd via its wholly-owned subsidiary Pantai Medical Centre Sdn Bhd (PMCSB) entered into a sales and purchase agreement (SPA) with YNH Hospitality Sdn Bhd (YNHSB) and Kar Sin Sdn Bhd (KSB), a wholly-owned subsidiary of YNH Property Bhd, last Thursday.

The purpose of the SPA is for the proposed acquisition of a parcel of freehold land together with a five-storey purpose-built private hospital with 384 surface car parks — formally known as Pantai Hospital Manjung — in Perak. The proposed acquisition is for a total consideration of RM63 million and is expected to be completed within three months.

PMCSB has been leasing the land and property from KSB since 2014. The acquisition is expected to result in cost savings for IHH in the long run, which will also enable IHH to benefit from the appreciation of the property.

KSB has been still the registered owner of the land and property despite having sold the property to YNHSB back in March 2015. This is due to the mutual agreement between the two parties which results in KSB being the registered owner of the property while YNHSB is the beneficial owner of the property.

As at Dec 31, 2015, the net book value of the property is RM51.17 million. As such, IHH is planning to purchase it at a premium of 23.5%. However, we believe that the potential future savings in operations and future bed expansions will more than outweigh the premium paid.

IHH intends to fund the acquisition either via borrowings and/or internally generated fund. Assuming that the acquisition is fully funded by borrowings, IHH’s gearing ratio will remain at 0.21 times as the acquisition is relatively small.

That said, we do note that IHH’s cash position as of the third quarter of financial year 2016 amounts to RM2.1 billion, which is more than enough to fund the entire acquisition without external borrowings. We opine that IHH will most likely fund the acquisition via internally generated funds to make way for bigger acquisitions locally or abroad that will require heavy external borrowings.

We think that despite the resilient demand for and growth in healthcare services across all its home markets, we remain wary of 2017 as challenges persist. This is in terms of the continuous increase in operating costs, cost of living in its home markets and inflation in personnel wages. — MIDF Research, Jan 27

from TheEdgeProperty.com http://www.theedgeproperty.com.my/content/1056259/ihh-healthcare-unit-buy-freehold-land-private-hospital-manjung


Kerjaya Prospek eyes RM800m new jobs this year

Kerjaya Prospek

KUALA LUMPUR (Feb 2): Construction company Kerjaya Prospek Group Bhd, formerly Fututec Bhd, hopes to secure more construction jobs to meet its internal replenishment order book target of RM800 million for the current year ending Dec 31, 2017 (FY17), according to its executive chairman Datuk Tee Eng Ho.

“We are looking towards [securing] bigger jobs in the second and third quarters of [financial year 2017] because that is usually when there are more [movements] with [property] developers,” he said in a recent interview with The Edge Financial Daily.

“Early last year, our internal replenishment target was RM600 million and we ended up more than doubling this to RM1.5 billion. This year we target RM800 million,” he said, adding the group currently has 19 ongoing construction jobs.

Tee also said he would further diversify the group’s construction business if there are opportunities to do so.

Kerjaya Prospek ventured into infrastructure works last March after securing a dredging works contract from the China Communications Construction Company that was worth RM181.31 million for the Seri Tanjung Pinang development in Penang. The job is expected to be completed by March 18, 2018.

“If similar [infrastructure] jobs [are offered], we can handle it now [with more ease],” said Tee, adding the group’s order book now stands at RM3 billion, while its tender book stands at RM1.4 billion.

On overseas expansion, Tee said it may be possible in 2018 or 2019.

“We don’t have plans [to do so] in 2017, but once the group is stronger, we may [go overseas] in 2018 and 2019,” he said.

Recall that in Dec 2015, Javawana Sdn Bhd which is a special purpose vehicle controlled by Tee’s wife, Datin Toh Siew Chuon, Tee Eng Tiong and Tee Eng Han became a substantial shareholder of property company GSB Group Bhd with a 16.67% stake after a private placement exercise, which fuelled talks of GSB becoming Kerjaya Prospek’s designated property arm.

Tee admitted the likelihood is there. “If the timing and pricing are right, and it would benefit all our shareholders, then we will do it,” he said.

Kerjaya Prospek shares closed unchanged at RM2.32 on Tuesday, which valued it at RM1.18 billion. In the past 12 months, the stock has climbed about 36%.

This article first appeared in The Edge Financial Daily, on Feb 2, 2017. Subscribe to The Edge Financial Daily here.

from TheEdgeProperty.com http://www.theedgeproperty.com.my/content/1056252/kerjaya-prospek-eyes-rm800m-new-jobs-year

Penang residential estate market remains lacklustre

Knight Frank Penang

PETALING JAYA (Feb 1): The general performance and outlook for the property market in Penang is still lacklustre as both economic conditions and general public sentiments are down, said real estate firm Knight Frank Malaysia in its “Real Estate Highlights 2H2016” report.

“Declines in both transaction volume and value have set the mood, resulting in some developers deferring their launches and pushing back plans for development.

“The residential sub-sector is experiencing a period of consolidation and readjustment in terms of both rentals and sales where improvements are not expected in the near term.

According to Knight Frank, there were fewer recorded transactions of high-end condominiums in the secondary market in 2H2016 compared with 1H2016.

“One large unit of 6,523 sq ft in size at Sky Home in Tanjung Bungah was transacted at RM598 psf while smaller-sized units of 2,000 sq ft to 2,400 sq ft in Gurney Paragon, Gurney Drive and Quayside Condo, Seri Tanjung Pinang were resold at prices ranging from RM1,000 psf to RM1,170 psf.

“Past transactions in 2015 for smaller-sized units in Gurney Paragon and Seri Tanjung Pinang have recorded prices ranging from RM830 psf to RM1,330 psf,” said the report.

Asking rents are slightly lower when compared to 1H2016.

“For larger-sized units (3,500 sq ft to 6,500 sq ft) in Tanjung Bungah, asking rents generally range from RM1.10 psf to RM2.00 psf per month while the upper band of asking rents is also noted to be lower — ranging from RM2.10 psf to RM2.50 psf per month.

“For similar-sized units in Gurney Drive, asking rents vary from RM1.80 psf to RM2.60 psf per month while for smaller-sized units in Tanjung Tokong and Gurney Drive, asking rents are in the range of RM2.20 psf to RM2.90 psf per month with some landlords asking higher rents of RM3.00 psf to RM3.80 psf per month,” added Knight Frank.

The office sub-sector, however, is more stable with both occupancies and rentals maintaining what was achieved in 1H2016. “This could be due to little incoming supply,” said the firm.

The existing supply of office space (10 storeys and above) on Penang Island remains the same as 1H2016 which is 5.59 million sq ft.

Occupancy rates for the four prime office buildings monitored in George Town ranged from 85% to 100% while newer buildings such as Suntech and Menara IJM Land, located out of the city centre, recorded an average occupancy rate of about 98% as of December 2016.

from TheEdgeProperty.com http://www.theedgeproperty.com.my/content/1055690/penang-residential-estate-market-remains-lacklustre

Construction of RM1.2 bil Qi City in Bandar Meru Raya has begun


PETALING JAYA (Feb 1): Green Venture Capital Sdn Bhd (GVC), a subsidiary of Wawasan Qi Properties Group (WQIP), has commenced construction work on the Qi City development in Bandar Meru Raya, near Ipoh in Perak. It is slated for completion by 2020.

Spanning 26 acres, Qi City is a RM1.2 billion mixed development. It is also the first-of-its-kind fully integrated education hub in Malaysia, said GVC.

“Today we are making another milestone with Qi City, building a contemporary, innovative and environmentally sustainable development.

According to WQIP in a statement today, Qi City is set to comprise an 840-bedded teaching hospital, condominiums, a lifestyle mall, a convention centre that can cater up to 1,500 people, hotel suites and the Quest International University Perak campus, a subsidiary of WQIP.

For the residential component, there will be three 25-storey blocks, offering 768 condo units with built-ups between 780 sq ft and 1,338 sq ft while the penthouses (18 units) will be around 2,121 sq ft.

“Qi City is an exclusive development with a lifestyle mall serving about 8,000 to 10,000 people daily, comprising staff members of the hospital, university students as well as hospital patients and visitors. This will undoubtedly create a demand for the condominium units there,” said WQIP executive director and chief executive director Chandragesan Suppiah in the statement.

“Upon completion of the condo units and the hotel suites, buyers can expect high returns on their investment. The 460 units of hotel suites will not only be able to accommodate medical tourism but also provide accommodation for parents visiting students at the campus.

“The state government is expecting about two million tourists to Bandar Meru Raya annually while the completion of the Animation Theme Park and the upcoming water park development will be a bonus for the hotel suites,” Chandragesan added.

He noted that Qi City “will generate favourable investment gains by unlocking the embedded values within its various components”.

“The main sales is expected in June. However, we may start the soft launch sometime in April,” noted Chandragesan.

WQIP has appointed a China-based entity, China Energy Hua Ren Industrial Investment Co Ltd (CEHR), as the turnkey contractor of this mixed development project.

from TheEdgeProperty.com http://www.theedgeproperty.com.my/content/1055683/construction-rm12-bil-qi-city-bandar-meru-raya-has-begun

Johor’s new high-end high-rise homes may dip below their launched prices this year

PETALING JAYA (Feb 1): The high-rise residential market in Johor’s Iskandar Malaysia has softened in 2016 with lower transaction prices in the subsale market.

The outlook for the market segment looks challenging with higher vacancy rates expected in 2017, according to CBRE | WTW Johor.

“High-rise residential units from the high-end segment may be transacted at about 20% lower from their launch prices.

“This is mainly because many owners have purchased these properties from the primary market through DIBS (Developer Interest Bearing Scheme),” said CBRE | WTW Johor branch director Tan Ka Leong.

It is unlikely to see a dip in prices among units in the affordable high-rise residential segment, where their launch prices were below RM600 psf, he told TheEdgeProperty.com.

In the real estate consultancy’s report “2017 Asia Pacific Real Estate Market Outlook: Malaysia”, it stated that Johor’s existing supply of high-rise residences in 2016 stood at 43,898 units, an increase of 16% from 2015.

“Our in-house survey found that about 15 high-rise residential projects were completed in 2H2015, contributing 9,025 units to the market, with nearly 50% of them in Iskandar Puteri.

“All these newly completed developments recorded fairly low occupancies of less than 30%,” said the report.

On the subsale market, the average transaction value for this segment stood at RM370 psf in 2016, about 11% lower than 2015. Transaction volume had decreased by 50% from the previous year.

“The highest transaction price recorded in the subsale market was for units within KSL City D’Esplanade, with a price of RM730 psf, followed by Sri Samudera and Zenith Suites with units transacted at about RM460 to RM470 psf,” the firm noted in the report.

The report also noted that more than 13,000 units of the mega development Forest City by Guangzhou-based developer Country Garden Properties Sdn Bhd have been sold of which 75% of them were purchased by Chinese buyers. Prices for the condo units are from RM1,200 onwards.

2017 will see about 19,000 units of high-rise homes coming into the Johor market.


Buyer’s market for Johor terraced homes

On landed homes, CBRE | WTW said the market is expected to remain a buyer’s market this year.

The supply of landed homes in 2016 stood at 294,694 units where terraced homes took up 93% of the total supply.

“The amount of landed homes is expected to increase by 13,584 in the next few years, comprising 91% of terraced homes, 7% semi-detached and 2% of detached homes,” said the report.

In the subsale market, 2-storey terraced houses were transacted at RM321 psf as at August 2016 — about the same as in 2015 while transaction volume had decreased by 40%.

In older residential areas such as Permas Jaya (RM300 psf), Taman Perling and Taman Pelangi (between RM275 and RM285 psf), higher transaction values were recorded.

Prices of 2-storey semi-detached homes had dropped by about 10%, having transacted at an average of RM488 psf in 2016. Transaction volume had decreased by 40%. As at August 2016, the highest transacted price for this property type was recorded in East Ledang (RM702 psf), followed by Taman Pelangi (RM588 psf).

from TheEdgeProperty.com http://www.theedgeproperty.com.my/content/1055637/johor’s-new-high-end-high-rise-homes-may-dip-below-their-launched-prices-year

Mah Sing’s CEO conferred ‘Datuk’ title

Mah Sing

PETALING JAYA (Feb 1): Mah Sing Group Bhd chief executive officer Datuk Ho Hon Sang was conferred the Darjah Kebesaran Panglima Mahkota Wilayah today.

In a statement today, the developer said the conferment, which carries the title “Datuk”, is effective starting today (Feb 1), “reflecting Ho’s leadership role and contributions to the nation”.

“I am very honoured to be conferred the Darjah Kebesaran Panglima Mahkota Wilayah from Seri Paduka Baginda Yang di-Pertuan Agong.

“I will continue to support Mah Sing’s group managing director Tan Sri Leong Hoy Kum and the team as we work towards bringing more success to the company,” he said.

Ho added that 2017 will continue to be a busy year for the developer as Mah Sing will be rolling out new launches with a focus on providing homes in strategic locations at an affordable price range.

“As Mah Sing’s CEO, we will continue to craft dream homes for the rakyat and maintain our exceptional standards as Malaysia’s premier lifestyle developer,” he added.

Among the developer’s upcoming launches in 2017 include Cerrado (Towers C and D) in Southville City, Residensi Seri Wahyu (Rumah Wilayah Persekutuan) in Lakeville Residence, landed link homes in its Rawang township and Meridin East, Pasir Gudang in Johor, as well as serviced apartments in Southbay City, Penang.

Ho was appointed as Mah Sing’s CEO last Aug 1 and has more than 30 years’ experience in the property development industry, engineering, consultancy, road privatisation and general management. He served as the CEO of Sunsuria Bhd prior to joining Mah Sing.

from TheEdgeProperty.com http://www.theedgeproperty.com.my/content/1055561/mah-sing’s-ceo-conferred-‘datuk’-title

Express Rail Link facing financial woes


AFTER operating for almost 15 years and now enjoying record-high passenger volumes, many would ­expect that KLIA Ekspres to be a commercially viable project that can stand on its own.

Unfortunately, that does not ­appear to be the case. Express Rail Link Sdn Bhd, KLIA Ekspres’ operator, is actually under financial stress and is looking for a way out.

Along with a 30-year extension that ERL is seeking from the government in lieu of RM2.9 billion in compensation owed to it, the company is also said to be restructuring about RM2.8 billion in debts owed to Bank Pembangunan Malaysia Bhd (BPMB).

Furthermore, sources tell The Edge ERL is seeking higher collection from the passenger service charge (PSC). Currently, ERL collects RM5 and RM1 from outbound international and domestic passengers respectively.

PSC collected from passengers in KLIA and klia 2 is shared between Malaysia Airports Holdings Bhd and the government based on a formula. ERL gets a share of the portion that the government receives.

In short, the extension of concession alone might not be enough for ERL to turn profitable. It will also need to defer the bulk of its debt payments while boosting its non-fare PSC income.

Note that YTL Corp Bhd owns a 45% stake in ERL and Lembaga Tabung Haji, 36%. SIPP Rail Sdn Bhd, which is linked to the Sultan of Johor, owns a 10% stake and the balance of 9% is held by Trisilco Equity Sdn Bhd.

Currently, the company is negotiating with the Public Private Partnership Unit under the Prime Minister’s Department to settle the RM2.9 billion it is claiming from the government for not being able to raise fares according to the concession agreement.

Meanwhile, filings with the Companies Commission of Malaysia in December 2016 show an increase in “liability secured under a charge” from RM940 million to RM4.08 billion by ERL.

Graph 1

The charge was originally lodged in late 1998 as a soft loan provided by the government to help ERL finance a portion of the RM2.4 billion cost to build the KLIA Ekspres.

Based on ERL’s financials as at June 2015, the outstanding debts owed to BPMB have ballooned to RM2.8 billion in total — RM1.071 billion under a “BPMB facility” and RM1.73 billion under a “repayment facility”.

ERL, which seems to be struggling to service its debts, has requested deferment of instalments  for the Repayment Facility due on May 5,  and Nov 5, 2015.BPMB agreed to the deferments.

While ERL’s FY2016 financials have not yet been lodged, sources familiar with the company say that some debt repayments were met during the financial year, reducing total borrowings to RM2.3 billion. To meet the obligations however, it is understood that additional capital had to be injected into the company.

But given ERL’s losses, this is not sustainable and repayments have to be deferred as part of a wider debt restructuring. ERL posted an after tax loss of RM4.07 million in FY2015.

This is the second time that ERL needs to restructure its debts. The BPMB and repayment facilities were both restructured in 2005, with the Finance Ministry’s approval, according to ERL’s financial statements.

The previous restructuring fixed the interest rate for both the facilities at zero — from January 1999 to January 2012 and from November 2002 to November 2015 respectively (see Table 1). The BPMB Facility was then subject to an interest rate of 13.01% per annum from January 2012 to January 2024. The Repayment ­Facility was subject to an interest rate of 11.3% per annum starting from November 2014 to November 2027.

Graph 2

Presently, additional deferment of the debt repayments is crucial for ERL if the company hopes to turn a profit. The 30-year extension will be meaningless if the repayments outpace the growth in operational profits.

Based on ERL’s liquidity risk analysis, the company would have to repay RM1.178 billion over two years (July 2015 to June 2017). In total, the terminal cash value of the debts would amount to RM3.57 billion based on the current repayment schedule.

While ERL is operationally profitable — making RM122.09 million in FY2015 — its earnings are grossly insufficient to meet its obligations.

At face value, it appears that the excessive debts may cause the downfall of the ERL project. However, this should not be the case given the relatively lenient interest and repayment terms of the debts thus far.

In fact, it is quite surprising that the ERL project is struggling financially at all.

After all, it services one of the top 10 busiest airports in Asia-Pacific, with over 51 million passengers a year. Besides, KLIA is far from the city centre — 67km by road — which increases the appeal of rail travel.

The addition of klia2 to the ERL’s line was also a huge windfall — it more than doubled ridership volumes to a record 11.03 million in 2015. The government even paid the RM100 million cost to connect klia2 to the KLIA Ekspres line in 2014.

On top of that, ERL’s revenue is substantially boosted by the PSC collection. In FY2015, the RM70.9 million of PSC revenue collected made up 28.8% of the total revenue that year — RM246.2 million. Fare revenue was RM175.15 million.

Whopping RM2.9 bil claim

It could be argued that ERL is loss-making because it was not ­allowed to raise fares in line with the fare schedule under the original concession agreement. Consequently, it is claiming RM2.9 billion in compensation.

However, it could be argued that the ERL fare schedule is highly unrealistic. Based on it, fares for the express service should have been increased to RM41 in 2004, RM56 in 2009 and RM74 in 2014. By 2024, the fares would be a hefty RM126 for a single trip.

Table 1

Instead, the fares were kept at RM35 for many years before being increased to RM55 a trip in late 2015. This hike, however, caused passenger volumes to fall for the first time, down 12% year on year to 9.7 million in 2016.

This is not entirely surprising given there are ample alternatives to the ERL. Services like Grab that can easily seat more than one passenger are offering airport rides for as low as RM65. Meanwhile, airport shuttle buses can be as cheap as RM17 for a one-way trip.

Based on the fare schedule, ERL would be charging RM74 for a one-way ride today. That would be about the same fare an airport taxi would charge to most areas in the Klang Valley. Clearly, the RM74 fare would not make commercial sense.

ERL is currently adding six more trains that will boost capacity by 50%. Hiking the fares further at this point would be counter-productive when more ridership is needed.

Thus, asking for higher PSC revenue makes more sense for ERL as it would not impact the rail’s ridership volumes.

Sources familiar with ERL however, point out that the PSC hike is unrelated to the compensation negotiations with the government.

But combined, the 30-year extension, higher PSC charges, and the debt restructuring will definitely serve ERL better than the original fare-hike schedule.

Meanwhile, the government is compelled to negotiate with ERL or be forced to pay the RM2.9 billion.

“Although the fare compensation calculations that were fixed in the concession agreement do not appear to be fair to the government, the attorney-general has advised that the formula that was set in the agreement is binding on the government,” reads the Auditor-General’s 2016 report.

Table 2

“Alterations to the compensation formula can only be done with agreement from both parties,” notes the report.

In fairness, ERL was a greenfield project and the first of its kind. The government had to dangle a carrot for the private sector. At the very least, ERL operations have been running relatively smoothly over the years despite the growing financial challenges, which is more than can be said for other public-private partnership projects that needed government bailouts over the years.

But if the government hopes to secure a fairer deal going forward, ERL must strike a better balance between commercial viability and government support.

This article first appeared in The Edge Malaysia on Jan 23, 2017. Subscribe here for your personal copy.

from TheEdgeProperty.com http://www.theedgeproperty.com.my/content/1050850/express-rail-link-facing-financial-woes