- IHH Healthcare Bhd announced yesterday that its indirect wholly-owned subsidiary, Gleneagles Development Pte Ltd has acquired a 51% stake (or 71mil shares) of Continental Hospitals Ltd (CHL) for RM166.7mil.

- According to its Bursa announcement, CHL is a provider of primary, secondary, tertiary and quaternary healthcare services.

- A check with CHL’s website shows that it operates a 750-bed multispecialty hospital in Hyderabad, India with six Centres of Excellence. The hospital has being operating since March 2013 and is the first in India to receive the Joint International Accreditation (JCI) within two years.

- IHH said that the acquisition will not have any material effect on the group’s earnings and net assets for FY15F. It also did not disclose any financial information on CHL.

- Given that the hospital had only opened for two years, we believe that any contributions to IHH’s bottomline will be minimal. Nevertheless, we think that the acquisition will help to fortify IHH’s foothold in the Indian market.

- IHH has an exposure in the India healthcare market via a 10.8% stake in Apollo Hospitals Enterprise Ltd to operate Apollo Gleneagles Hospital in Kolkata and Apollo Gleneagles PET-CT Centre in Hyderabad.

- It also has a 50% stake to develop the Gleneagles Khubchandani Hospital in Mumbai with a 450-bed capacity. The hospital is slated for completion this year.

- This acquisition comes on the back of the block by Competition Commission of Singapore on IHH to acquire Radlink-Asia from Fortis Healthcare Singapore for RM346mil.

- We believe that IHH will continue to look for acquisition opportunities to drive growth.

- While IHH continues to achieve inpatient and revenue intensity growth, and has better margins compared to those of peers; we deem its valuations to be fair currently. We maintain HOLD (Fair Value: RM5.40).

Source: AmeSecurities Research - 24 Mar 2015