-  We reiterate our HOLD recommendation on IHH Healthcare Bhd with an unchanged fair value of RM3.25/share (under review), based on FY13’s sum-of-parts valuation, pending meeting with management.

-  After IHH’s first AGM yesterday, two key takeaways were reported in local dailies:- (1) No plans to establish another REIT given that there is no need for it in the immediate term. Having said that, we continue to believe that the group could potentially still be exploring a REIT for Acibadem once the timing is right. The group currently has a 35.8% equity interest in Parkway Life Real Estate Investment Trist (PLife REIT). (2) No plans to divest its minority stakes (11.2% stake) in India’s Apollo Hospitals Enterprise Ltd (Apollo) at the moment. Nonetheless, the group does not rule out the possibility of divesting these stakes in the future. Note that Apollo’s stakes were inherited upon the reorganisation of IHH. As such, it does not fit well in the group’s long-term overall strategy.

-  However, the group is in constant discussion with Apollo for potential business tie-ups, which is a positive, in our view, given the already established relationship with Apollo. We also understand that IHH is continuously casting an eye for international expansion into India and China.

-  As part of the group’s expansion international strategy, the upcoming 450-bed greenfield hospital called Gleneagles Khubchandani, Mumbai, is targeted for completion by middle of FY14F. Further out, the group appears to be making further inroads into New Delhi and Bangalore.

-  All in, we believe the group is certainly looking at viable alternatives to penetrate into tightly regulated and largely underserved markets for international expansion, which are key long-term catalysts. Elsewhere, on top of the upcoming hospital in Mumbai, four international hospitals (China, Vietnam, Abu Dhabi and Hong Kong) are in the making.

-  While we see IHH as a one of the major beneficiary of the growing private healthcare theme, valuations are expensive with the stock trading at 54x FY13F’s PE, which is at a premium to its peers.

Source: AmeSecurities