• According to The Edge Weekly, Sunway is looking to sell a 20%-25% stake in its healthcare business to Government of Singapore Investment Corporation (GIC) for $250mil.
   
• In a Bursa filling dated 4 September 2020, Sunway has confirmed appointing Maybank Investment Bank to explore strategic investment options for its healthcare portfolio, in line with the company’s objective to enhance shareholder value to explore and evaluate various options for all its businesses.
   
• In 1QFY21, the healthcare division’s revenue of RM171mil and pretax profit of RM14mil accounted for 17% and 16% respectively of the group. Currently, the healthcare revenue mainly stems from 2 medical centres - Sunway Medical Center (Tower ABC) in Bandar Sunway and Sunway Medical Center Velocity in KL City Centre, with both containing 802 and 240 hospital beds respectively.
   
• Meanwhile, there are 7 hospital projects in the pipeline with the earliest targeted for completion on 1Q2022 involving the expansion of Sunway Medical Center (Tower DEF) in Bandar Sunway. We currently peg Sunway’s healthcare division’s FY22F target PE at a conservative 25x (vs over 40x for IHH Healthcare and KPJ Healthcare), which translates to a valuation of RM3.3bil, 30% of our SOP valuation.
   
• Hence, the selling price of US$250mil (RM1bil) for a 20%-25% of the stake represents a premium of 25%-43% to our current valuation and a prospective FY22F PE of 30- 38x. We are positive on the development, if it materialises, as this should enable Sunway to monetise its healthcare division and secure a strong strategic partner and investor. Based on the healthcare segment’s NBV of RMmil, this could also generate net gains of RM180mil to RM344mil - up to % of FY21F net profit.
   
• This higher valuation for the healthcare division will raise our SOP to RM2.01-RM2.03, assuming a 20%-25% stake sale. However, we maintain our BUY recommendation
   
• According to The Edge Malaysia weekly, Sunway is looking to sell a 20%–25% stake in its healthcare business to Government of Singapore Investment Corporation (GIC) for US$250mil.
   
• In a Bursa Malaysia filing dated 4 September 2020, Sunway has confirmed appointing Maybank Investment Bank to explore strategic investment options for its healthcare portfolio, in line with the company’s objective to enhance shareholder value to explore and evaluate various options for all its businesses.
   
• In 1QFY21, the healthcare division’s revenue of RM171mil and pretax profit of RM14mil accounted for 17% and 16% of the group’s revenue and pre-tax profit respectively. Currently, the healthcare revenue mainly stems from 2 medical centres i.e. Sunway Medical Centre (Tower ABC) in Bandar Sunway and Sunway Medical Centre Velocity in KL City Centre, containing 802 and 240 hospital beds respectively.
   
• Meanwhile, there are 7 hospital projects in the pipeline with the earliest targeted for completion in 1Q2022 involving the expansion of Sunway Medical Centre (Tower DEF) in Bandar Sunway. We currently peg the healthcare division’s FY22F target PE at 25x, in line with its local peer, which translates to a valuation of RM3.3bil, 30% of our SOP valuation.
   
• Hence, the selling price of US$250mil (RM1bil) for a 20%–25% of the stake represents a premium of 22%–52% to our current valuation and a prospective FY22F PE of 30– 38x. We are positive on the development, if it materialises, as this should enable Sunway to monetise its healthcare division while securing a strong strategic partner and investor.
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• This higher valuation for the healthcare division will raise our SOP to RM2.01–RM2.03, assuming a 20%–25% stake sale. For now, we maintain our BUY recommendation with an unchanged SOP-derived fair value of RM1.98/share, which also reflects a 3% premium for our 4-star ESG rating until Sunway officially announces the deal.

Source: AmInvest Research - 21 Jun 2021