MARC Ratings has assigned a rating of AA_IS(cg) to Sunway Healthcare Treasury Sdn Bhd’s (SH Treasury) Islamic Medium-Term Notes (Sukuk Wakalah) Programme of up to RM5.0 billion. The outlook is stable. The rating reflects the credit strength of parent, Sunway Healthcare Holdings Sdn Bhd (SHH) based on the unconditional and irrevocable guarantee extended by SHH to the programme. The outstanding under the unrated sukuk stood at RM388 million as end-February 2024. 

The rating reflects SHH’s strengthening business profile with a growing market share in the Malaysian healthcare sector and its strong cash flow generation from resilient healthcare demand. The rating is also underpinned by SHH’s healthy liquidity position and strong financial flexibility stemming largely from its shareholders, Sunway Berhad and Greenwood Capital Pte Limited, an indirect wholly-owned subsidiary of GIC Private Limited (GIC), Singapore’s sovereign wealth fund. These factors are tempered by execution risk on the group’s rapid expansion plans, concerns regarding shortages of medical personnel and exposure to regulatory and contingent liabilities.

Since opening its inaugural Sunway Medical Centre (SMC) in Bandar Sunway in November 1999, the group has established itself as a key player among private healthcare providers in Malaysia. The group currently operates three hospitals with 1,148 licensed beds (2018: 616 beds), capturing an estimated 7% of the market share based on bed count. Two new hospitals are expected to open from 4Q2024 and 1Q2025. This, coupled with the current capacity expansion taking place at the existing SMC Bandar Sunway and SMC Velocity, will expand the group’s total bed capacity to over 2,200 by end-2025, narrowing the gap with market leader KPJ Healthcare Berhad (KPJ Group), which has over 3,700 beds as at to-date. 

The group’s strengthening business profile is underpinned by its established 24-year operating track record, strong brand equity as well as its strategically located hospitals in key service areas in the Klang Valley and Penang. MARC Ratings also views long-term industry growth as sustainable, driven by an ageing and growing population, among other factors. 

The group’s strong financial profile is reflected in its solid profitability, with an above-peer EBITDA  margin in the high 20% range, supported by its tertiary focus. In 2023, the group posted revenue of RM1.5 billion up 37% y-o-y, while maintaining its EBITDA margin in the high twenties. The solid top-line performance, supported in part by portfolio expansion; SHH added SMC Penang to its portfolio in November 2022, saw the group posting stronger cash flow from operations (CFO) of RM356.4 million compared to RM189.0 million in 2022. 

The rating agency also views the group’s strong balance sheet positively. Although total debt increased to RM697.9 million as at end-2023 from RM32.9 million a year ago, leverage remained low, with a debt-to-equity (DE) ratio of 0.26x. The borrowings were primarily used to fund the purchase of Tower A and B of Sunway Medical Centre from Sunway Real Estate Investment Trust (Sunway REIT), and towards meeting some capex requirements. Capital injections by shareholders have helped to support the group’s healthy financial position. In 2021, GIC took a 16% stake in SHH for RM750 million, of which RM300 million has been paid up with the remaining RM450 million expected to be received in 2024. These proceeds have been and will be utilised to fund the group’s expansion plans.  

MARC Ratings expects SHH to maintain its better-than-peer capitalisation although leverage is projected to rise over the next couple of years; borrowings are expected to peak at around RM1.1 billion, translating to a DE ratio of 0.4x in 2025 before tapering down gradually. MARC Ratings opines the group’s solid cash-generative operations to support deleveraging. Under the rating agency’s sensitised case that applies a moderate pre-tax profit growth of 5% p.a. over 2024-2028 (as opposed to the 22% assumed in the base case), cash flow coverage on interest and debt is expected to remain strong at 8.4x-13.9x and 0.4x-0.9x over the forecast period. 

The group’s plan to boost its capacity through several expansion projects, nevertheless, brings execution risk. While the rating agency notes the group’s long history of managing hospitals, there are some execution risks in such rapid growth, which could exacerbate traditional pressures on operating performance such as a tight labour market for experienced staff.

The stable outlook reflects MARC Ratings’ expectations that SHH will maintain its stable performance in the next 12-18 months and that the company’s credit strength will remain resilient as a result. 

 

Considerations for a positive rating action include demonstrated sustainable improvement in operating fundamentals and credit metrics. 

Factors that could lead to a negative rating action include: