• We maintain our HOLD call on IHH Healthcare (IHH) with an unchanged fair value (FV) of RM6.27. We use DCF to value IHH Healthcare with a WACC of 7% and terminal growth rate of 3.5%. Incorporated in our FV is a 3% premium for our ESG rating of 4 stars for the company.

• IHH Healthcare has disposed of its entire 62.2% stake in Continental Hospitals Private Limited (Continental Hospitals). We gather that the buyer is Dr Gurunath Reddy and affiliates, who is the partner shareholder in Continental Hospitals.

• Continental Hospitals owns a hospital which is located at Hyderabad, India. Recall that in 2015, IHH Healthcare acquired a 51% stake in Continental Hospitals. Subsequently, IHH Healthcare increased the stake to 62%. We gather that Continental Hospitals has more than 200 beds. According to its website, the hospital’s key specialties include gastroenterology, oncology, orthopedics, neuroscience, cardiology and multi-organ transplants.

• According to its announcement to Bursa Malaysia, the divestment “is part of IHH Healthcare’s portfolio strategy review, focused on strengthening our healthcare capabilities for our patients, and creating more value for the stakeholders”.

• Operationally, we are positive on the divestment as it will allow management to focus on deepening its presence in India through Fortis Healthcare. However, the financial evaluation cannot be ascertained at this juncture as the selling price was not disclosed in the announcement.

• Pending details on the selling price, we maintain our earnings estimates for FY21, FY22 and FY23. At over 200 beds, Continental Hospitals is small compared to the more than 15,000 beds at IHH Group. For India’s market, IHH Healthcare still has significant exposure via Fortis Healthcare which operates 27 hospitals and 4,000 beds.

Source: AmInvest Research - 15 Dec 2021