- We reaffirm our HOLD recommendation on IHH Healthcare with an unchanged fair value of RM3.60/share, based on a sum-of-parts valuation.
- According to Bloomberg newswire, IHH has dropped plans to bid for Healthscope Ltd, Australia’s second-largest healthcare provider, which could be worth as much as AUD$5bil (RM14.8bil).
- According to the report, IHH’s interest waned as Healthscope’s owners, TPG Capital and Carlyle Group, veered towards an initial public offering that may raise as much as AUD$4bil.
- We are neutral on this development as the price tag of RM14.8bil would raise IHH’s net gearing significantly even though it would enabled IHH to penetrate into new mature markets, namely, Australia and New Zealand. Healthscope also reported losses of AUD$117mil in FY13 due to exceptional items and goodwill impairment.
- That aside, we understand that new markets for future acquisitions would be in Asia.
- IHH will continue to focus on its key markets, namely, Malaysia, Singapore and Turkey.
- Malaysia and Turkey are the key drivers for expansion. Over the next few years, IHH is expected to increase bed capacity by 71% to 7,140 beds for its hospitals, and by 33% to 2,271 beds under JVs and hospital management agreements. Singapore will only see a ramp-up in bed capacities at Mount Elizabeth Novena.
- IHH’s expansion plans are well positioned to ride on the growing private healthcare demand and ageing population in its key markets.
- While we like its good execution track record in turning around Mount Elizabeth Novena, improving profitability at Acibadem in Turkey and hospital expansion, we believe valuations are hefty at 44x FY14F PE.
- Taking all in, we maintain our EPS estimates and HOLD recommendation.
Source: AmeSecurities
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