MARC reaffirms Radicare rating

theedgedaily.com: MARC has reaffirmed the rating of MARC-1 on Radicare (M) Sdn Bhd’s (Radicare) RM49 million Commercial Paper Programme; a reflection of the secured cash receivables from the Ministry of Health (MOH) backed by invoices issued to the MOH; a 1.25 times security cover of invoices issued; stringent requirements of the issue structure; sheer dominance of Radicare’s services in the central and eastern region of peninsular Malaysia.
Radicare’s principal activities are providing hospital support services, which include, clinical waste management, cleansing services, linen and laundry services, facilities engineering maintenance and biomedical engineering maintenance.
Radicare’s other activities are in designing, constructing, equipping and commissioning of hospitals.
Pursuant to the privatization of hospital support services by the Government of Malaysia (GOM), Radicare was awarded by the Ministry of Health (MOH) in 1997, a concession to provide certain non-clinical support services to public hospitals located in the Federal Territory, Selangor, Kelantan, Pahang and Terengganu for a period of 15 years.
The Concession Agreement (CA) covers a total of 37 public hospitals (Contract Hospitals) and the government may designate new hospitals to the existing list of Contract Hospitals from time to time.
To date, the government has designated an additional 11 (including 4 in 2004) new hospitals to Radicare. Fees for services rendered to the Government are payable by the Government monthly, in accordance to the CA.
The CP issuance acts as a bridging tool to accommodate Radicare’s working capital requirement.
The drawdown of the CP is based on approved invoices issued to MOH; the issued amount of these shall be equivalent to 80% of the approved invoice value, thus giving a security cover of 1.25 times to the proposed issue.
An approved invoice is one which has been acknowledged by MOH and is net of demerit deductions. Monies received from the MOH will be remitted directly to a Sinking Fund Account, predominantly for the purpose of redeeming the CPs and covering any shortfall for rollover.
The company made a turnaround in fiscal 2003 with both revenue and profit registering growth of 16.5% and 284.4% respectively.
In FY2004, on the back of 9% growth in revenue, profits increased by 6.5% from the previous year, whilst maintaining the double-digit operating profit margin of 11.9%.
Going forward, Radicare is expected to record revenue growth of between 5%-11%, driven mainly by increased demand for hospital support services.
Radicare’s debt leverage ratio as at end 2004 was 0.23 times. Pro-forma debt leverage ratio assuming full drawdown of the CPs is 0.63 times, well below the covenanted level of 60:40.