IHH has announced the submission of a confidential, conditional, non binding, indicative proposal to Ramsay Health Care Limited (Ramsay) and Sime Darby Holdings (SDH) to acquire 100% of the Ramsay and SDH’s 50:50 joint venture company known as Ramsay Sime Darby Healthcare (Ramsay Sime Darby). We view this positively as this should expand IHH’s market reach and footprint in Asia. However, as the discussion is just preliminary and no agreement has been reached between the parties, we make no change to our earnings estimates and maintain our Outperform call with an unchanged TP of RM7.50.

• Indicative proposal details. Under the indicative proposal, the conditional indicative enterprise value for Ramsay Sime Darby is RM5.67bn (or equivalent to USD1.35bn) on a cash free, debt free basis. The indicative proposal is subject to conditions for: i) completion of due diligence, ii) negotiation and finalisation of a sale and purchase agreement; and iii) completion of any conditions precedent, including receipt of any regulatory approvals. Ramsay and SDH have agreed to a 4-week period of exclusivity to allow IHH to conduct due diligence and negotiate a sale and purchase agreement.

• Ramsay Sime Darby is a 50:50 joint venture between SDH and Australia’s Ramsay Health Care. Its Asia-focused portfolio consists of 1,567 licensed beds across 7 premium hospitals in Malaysia and in Indonesia, and a day surgery facility in Hong Kong. It also operates a nursing college in Malaysia. According to the SDH’s FY21 annual report, Ramsay Sime Darby generated RM1.06bn revenue and a PBIT of RM122m in FY21. However, we expect stronger performance from FY22F onwards following the acquisition of Manipal Hospital in Klang, which currently known as Bukit Tinggi Medical Centre (FY21 only captured a 3-month impact as the acquisition completed in April 2021). Subang Jaya Medical Centre is the flagship hospital of Ramsay Sime Darby. In February 2022, SDH decided to shelve its IPO plan on Ramsay Sime Darby, which was expected to raise c.USD300m (RM1.2bn).

• Our view. We are positive on the move as this should help IHH to strengthen its Southeast Asia portfolio and penetrate Indonesia, a new market with high growth potential and 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. As some of the most rapidly ageing countries are found in Southeast Asia, this region could potentially generate new growth opportunities for IHH. Also, fast growing middle class population in Southeast Asia is expected to spur the demand for higher quality healthcare.

Source: PublicInvest Research - 23 Mar 2022