• We retain our HOLD call on IHH Healthcare (IHH) with an unchanged DCF-derived fair value of RM6.89 based on WACC of 7%, terminal growth rate of 3.5% and a 3% premium for our unchanged ESG rating of 4 stars. This implies an FY23F PB of 2.2x.

• Today, IHH terminated its proposed acquisition for Ramsay Sime Darby Health Care (Ramsay Sime Darby).

• To recap, IHH 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 in March 2022.

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

• The EV of RM5.67bil valued Ramsay Sime Darby at an estimated FY22 (ending June) EV/EBITDA of 20.7x.This would have been higher than IHH’s EV/EBITDA of 15x, KPJ’s 12.4x and regional peers’ average of 14.3x for FY22 (ending June), but largely in line with the 21.9x for the acquisition valuation of Prince Court Hospital in Sep 2020.

• We have been neutral on the proposed acquisition since its first announcement in March 2022, because the price tag appeared slightly expensive, though possibly offset by Ramsay Sime Darby’s post-Covid recovery as well as establishing a foothold for IHH to enter the Indonesian market that could be EPS-enhancing over the longer term.

• Hence, the termination of the proposed acquisition will not have any significant impact to our earnings forecasts.

• At this juncture, we view the stock trading at a fair FY23F PB of 2.2x vs. its 5-year mean of 2.3x, while dividend yields are unexciting at 2%.

Source: AmInvest Research - 9 Sept 2022