Sime Darby Holdings Bhd (SDH) announced that SDH and Ramsay Health Care Ltd (Ramsay) have received RM5.67bn (or USD1.35bn) conditional, non-binding buyout offer from IHH Healthcare Bhd to acquire 100% of their 50:50 joint venture Ramsay Sime Darby Health Care Sdn Bhd (RSDH). We view the indicative disposal price of RM5.67bn, estimated at EV/EBITDA of about 25x, to be fair. We are positive on the deal as it enables the Group to monetize its non-core assets, with the proceeds may be partly used to pay for special dividend. Nevertheless, we make no changes to our earnings forecast as the discussions are at preliminary stage and there is no guarantee that an agreement will be reached. We maintain our Neutral call on Sime Darby with an unchanged SOTP-target price of RM2.32, pending finalization of sale and purchase agreement.

• Indicative Proposal. Under the indicative Proposal, the conditional indicative enterprise value for RSDH is RM5.67bn on a cash free debt free basis. The Indicative Proposal is subject to conditions, i) completion of satisfactory due diligence; ii) negotiation and finalization of a sale and purchase agreement; and iii) completion of any conditions precedent, including receipt of any regulatory approvals. SDH and Ramsay have agreed to a period of exclusivity of four weeks to allow IHH to conduct due diligence and negotiate a sale and purchase agreement.

• Financial Impact. The news is not a surprise as management had earlier expressed its intention to monetize its non-core businesses. We view the indicative disposal price of RM5.67bn to be fair at approximately 25x EV/EBITDA, compared to past transactions valuing healthcare assets at 22-24x. We view this proposal positively as it helps to realize the underlying value of non-core assets within the Group and strengthen its balance sheet.

Source: PublicInvest Research - 23 Mar 2022