- Sime Darby’s newly-minted partnership with Australia-listed Ramsay Health Care aims to double its number of the hospitals within the next three to five years.

- StarBizWeek reported over the weekend that the immediate focus for the partnership is to expand within Malaysia and Indonesia.

- The report cited Sime Darby Healthcare MD Raja Azlan Shah Raja Azwa as saying the group is looking at setting up new medical centres in Penang, Malacca, Johor Bahru, Kuantan, Pahang and Kuching. In Indonesia, it will focus on Greater Jakarta.

- The expansion will include venturing into Vietnam and China within the next two to three years, and following that, onwards to Myanmar.

- This means 1-2 new hospitals per year. The gradual expansion plan, we believe, will further minimise the risks in an already defensive sector that provides secure and stable income.

- Sime last week formalised a 50:50 JV with Ramsay, with the proposed injection of their respective Malaysian and Indonesian operations into what will eventually be known Ramsay Sime Darby Health Care Sdn Bhd. The JV is expected to materialise by 30 June, 2013.

- Sime operates three hospitals, a nursing and health sciences college in Malaysia, and a soon-to-be completed medical complex, while Ramsay operates two hospitals in Jakarta and another in Surabaya, Indonesia. Combined, they will have a 1,561-bed capacity.

- In an insight, StarBizWeek reported that the deal, two years in the making, began when Ramsay first approached Sime in 2011. Raja Azlan also revealed that it will be the Malaysian team that will be driving the new entity.

- Sime Healthcare presently accounts for less than 1% of Sime Darby group’s earnings. Raja Azlan says it is looking at doubling that to 2%-3% in the medium to long term.

- We maintain a BUY on Sime Darby, with a target price of RM11.20/share, based on a sum-of parts valuation and an implied PE of 16x for FY13F.

Source: AmeSecurities