MARC has affirmed Radicare (M) Sdn Bhd’s (Radicare) ratings on its RM100.0 million Commercial Papers/Medium Term Notes (CP/MTN) and RM50.0 million Medium Term Notes (MTN) facilities at MARC-1/A+ and A+, respectively. The ratings outlook is stable. The affirmed ratings continue to reflect the group’s sustainable operating performance and debt servicing ability under a 15-year concession to provide non-clinical services to government hospitals under the Ministry of Health (MoH), supported by rising demand for hospital support services. The ratings also reflect structural features of the rated facilities which determine that the credit risk in the transaction is primarily that of the government. These strengths are moderated by the risk of renewal of the concession which expires in 2011.

Drawdowns of the CP/MTN facility are backed by a minimum 1.20 times in value in terms of assigned invoices of the Contract Hospitals to the nominal of the CP and/or MTNs issued. Further, the MTN facility is supported by assignment of all future revenues from five identified government hospitals. All monies received from the assigned invoices from these five government hospitals are remitted directly into designated accounts to meet Radicare’s obligation on the notes.

Radicare is the sole concessionaire for the provision of non-clinical services to 47 hospitals and medical institutions (Contract Hospital) in the populated Federal Territory and Selangor state (central zone) as well as the east coast states of Pahang, Terengganu and Kelantan (eastern zone). Among the hospital support services Radicare provides are clinical waste management, cleansing, linen and laundry, facilities and biomedical engineering maintenance.

The group’s revenue has continued to grow year-on-year. For financial year ended December 31, 2008 (FY2008), Radicare recorded a 14% increase in revenue to RM411.5 million (FY2007: RM360.8 million) mainly due to higher fees recognised from new hospitals and revenue from variation orders amounting to RM7.6 million from the government due to additional facilities/equipment at the new hospitals. The bulk of the revenue is derived from government hospitals, whilst 4% from private hospitals.  Its pre-tax profit increased by 17.8% to RM54.9 million (FY2007: RM46.6 million) attributable to lower operating cost mainly due to a one-off settlement claims in respect of Selayang Hospital of RM2.2 million recorded in the previous year. Operating profit margin improved marginally to 14.3% in FY2008 (FY2007: 13.7%) while operating cash flow rose to RM29.8 million in FY2008 from a negative RM10.7 million in the previous financial year. Despite the improved cash flow position, the group’s debt-to-equity (DE) ratio rose to 0.93 times as of April 30, 2009 from 0.90 times in FY2008 mainly on account of a further drawdown of the CP/MTN. The drawdown proceeds were utilised to finance its expansion programme of the new laundry plants in Teluk Panglima Garang and Gebeng, the set up of new businesses in Middle East and ambulance service as well as to provide liquidity to bridge the gap between collections and operating needs. Radicare’s debt leverage remains within the covenanted level of 1.50 times.

The group is expanding its business capacity locally to cater for higher demand for hospital support services, as well as venturing into non-MoH contracts in biomedical engineering maintenance in Middle East. While these non-MoH contracts are currently low in value and may entail higher business risks, noteholders are insulated from the risks associated with Radicare’s non-MoH business by virtue of the receivables backing the rated facilities. 

The stable outlook reflects Radicare’s position as a concessionaire and its proven track record of sustainable earnings, supported further by the protection afforded by the issue structure and resilient nature of the healthcare industry.
 
Contacts:
Rajan Paramesran, 03-2090 2233/ rajan@marc.com.my;
Elea Nor Zainal, 03-2090 2263/ elea@marc.com.my;
Katherine Hee, 03-2090 2273/ hcmay@marc.com.my