Investment Highlights

• We maintain our HOLD call on IHH Healthcare (IHH) with an unchanged fair value (FV) of RM7.00. We use DCF to value IHH 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 IHH Healthcare.

• IHH has submitted a confidential, conditional, non-binding and indicative proposal to Ramsay and Sime Darby Holdings (Sime) to acquire a 100% stake in Ramsay Sime Darby Health Care Sdn Bhd (Ramsay Sime Darby).

• The conditional indicative proposed enterprise value (EV) for Ramsay Sime Darby is RM5.67bil (or US$1.35bil assuming the USD/MYR rate of 4.20) on a cash-free, debtfree basis.

• In filing to Bursa Malaysia, IHH said that discussions between IHH, Ramsay, and Sime are preliminary. No agreement has been reached in relation to the indicative proposed enterprise value and there is no guarantee that an agreement will be reached, added IHH.

• Pending the confirmation of the deal, we are neutral on the news at this juncture. The EV of RM5.67bil values Ramsay Sime Darby at an estimated FY21 (ending June) EV/EBITDA of 25x and EV/bed of RM3.17mil. While this is higher than IHH’s FY21 (ending December) EV/EBITDA of 14.5x, note that these numbers may not be fully comparable due to the difference in their financial year-end. Also, we understand that Ramsay Sime Darby’s earnings have yet to recover to the pre-Covid level. Hence there is still room for earnings improvement in the future.

• In 2019, IHH acquired Prince Court Hospital at an EV/EBITDA of 21.9x and EV/bed of RM3.66mil.

• IHH’s balance sheet is strong with a net gearing of 0.21x as of end-4Q2021. Assuming a 50/50 cash/debt funding for the deal, we estimate that IHH net gearing will increase to 0.41x. In our view, this is still a comfortable level since it is below 0.5x. However, it also means that room for future acquisitions will be limited going forward.

Source: AmInvest Research - 23 Mar 2022