• Yesterday, Parkway Life REIT (PLife REIT) and IHH Healthcare (IHH) announced their strategic collaboration in relation to three Singapore hospital properties – Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital. The collaboration comprises the following:

1. New master lease agreements pertaining to the hospitals: These will be for a term of 20.4 years (from 2022 to 2042), with an option to renew for a further 10 years.
2. Agreement for renewal capex works at the said hospitals: Estimated to take ~3 years, works are targeted to commence no later than 1 Jan 2023. PLife REIT will inject a one-time renewal capex of up to S$150mil to enhance overall performance, operations and architectural design of hospitals. Utilisation of available space and resources is expected to be improved.
3. Right of first refusal (ROFR) to be granted over Mount Elizabeth Novena Hospital in the event of its disposal. This serves to enhance the acquisition potential of PLife REIT.

• While the master lease agreement was within expectation, we view the renewal capex works as a good opportunity for IHH to deepen the level of service it can offer to its patients, appealing to a wider range of both local and foreign customers. We feel that it could provide IHH with better positioning in the competitive Singaporean market.

• As of now, we are maintaining our earnings forecasts pending further details on the specifics on the capex expansion works.

• Plife REIT already has a foothold in two key markets in Singapore and Japan. We note that its plans to build into a third key market as potentially beneficial to IHH, given the two parties close working relationship.

• We maintain our HOLD call on IHH Healthcare with a fair value of RM5.64/share, based on a DCF with a WACC of 7.0% and a terminal growth rate of 3.5%. We accord a 3% price premium for its ESG rating of 4 stars.

Source: AmInvest Research - 15 Jul 2021