• We maintain our HOLD call on IHH Healthcare (IHH) with an unchanged fair value 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.

• IHH Healthcare has announced that it intends to dismiss the claims made by Emqore Envesecure Private Capital Trust (Emqore). Note that Emqore is “seeking for, among others, damages in excess of US$6.5 billion”. IHH Healthcare is one of the 48 defendants in total (28 named defendants and 20 non-party defendants) in the lawsuit.

• We gather that Emqore has filed the suit against IHH on 16 June 2020. In its Bursa announcement, IHH explained that it “was served on 26 July 2021 with Emqore’s original complaint and Emqore’s motion to amend its original complaint. The motion to amend was pending adjudication before the US District Court until 3 December 2021 when Emqore’s amended complaint was filed at the US District Court”.

• IHH believes that it has strong grounds to dismiss the suit based on three principal grounds: i) lack of personal jurisdiction; ii) forum non conveniens; and iii) failure to state a claim for relief. The suit by Emqore is related to the issuance of Fortis Healthcare Ltd shares to IHH’s subsidiary in or around 2018.

• In our view, the news is slightly negative on IHH Healthcare in the short term due to the uncertainty arising from the outcome of the lawsuit.

• Pending further development, we maintain our earnings estimates and HOLD call. The brighter earnings prospect from higher core hospital operation is offset by the uncertainty on the outcome of the lawsuit.

Source: AmInvest Research - 6 Jan 2022