• We retain BUY on IHH Healthcare (IHH) with an unchanged DCF-derived fair value (FV) of RM6.89. The FV incorporates a 3% premium for our unchanged ESG rating of 4 stars. This implies an FY23F P/BV of 2.3x at parity to its 5-year mean.

• Yesterday, IHH entered into definitive agreements to acquire 100% equity of Kent Health Group (Kent). The acquisition is anticipated to complete by 1QFY23F, pending the receipt of necessary regulatory approvals. Based on our check with management, the group prefers disclosing the enterprise value (EV) of the acquisition after the transaction is closed.

• Kent was established in 2004 and grew to become the largest private healthcare service provider in Izmir (the third largest city in Turkiye) with 340 beds.

• In Izmir, Kent is a well-established brand that caters to patients with middle and upperclass incomes. Furthermore, Kent is well-equipped with cutting-edge technology, modern radiation oncology and nuclear medicine facilities.

• Separately, we understand that Kent's EBITDA margin is in the high-teens, but IHH will enhance to >20% in the future through different synergies and cost optimisation strategies.

• Nevertheless, we view this acquisition as in line with expectations, and have accounted for in our DCF valuation model. In Nov 2022 analyst briefing, IHH’s management guided that the primary growth driver for FY23F will be the expansion of the group’s bed capacity in key regions - Malaysia, India and Turkiye.

• At this juncture, we view the stock trading at an undemanding FY23F P/BV of 2.0x vs. its 5-year mean of 2.3x, while dividend yields are decent at 2%.

Source: AmInvest Research - 3 Feb 2023