KUALA LUMPUR (Sept 5): IHH Healthcare Bhd’s (KL:IHH) planned acquisition of Island Hospital is done at an attractive valuation and would deepen the hospital operator’s presence in the medical tourism market, analysts said.

The price tag, which values the Penang-based hospital at forward enterprise multiple of 19.2 times, is “reasonable” and “attractive” given its high quality assets, said Hong Leong Investment Bank. The valuation is also lower than that of IHH’s past acquisition and others’ recent deals, the research house noted.

The deal is also “core earnings accretive despite our conservative assumptions” and is an indication that IHH sticks to its “disciplined” acquisition rules while ensuring that Island Hospital does not fall into the hands of IHH’s competitors, Hong Leong IB said.

On Wednesday, IHH announced that it is acquiring 600-bed Island Hospital in Penang for RM3.92 billion in cash. The acquisition includes the vacant land, which is valued at RM223 million with approvals secured for future development.

The acquisition is IHH's latest since March, when it acquired a much smaller Timberland Medical Centre for RM245 million. The company bought Prince Court Medical Centre at an enterprise multiple of 23.2 in 2020 and Fortis Healthcare at an enterprise multiple of 22.3 in 2019.

The valuation of Island Hospital is also lower than Columbia Asia’s acquisition of Ramsay Sime Darby Health Care at 20.1 and “as such, we deem the price tag as attractive,” HLIB said.

CIMB Securities, meanwhile, said that the seemingly-high valuation of Island Hospital is justified, given its strategic location, focus on the lucrative medical tourism and potential for capacity growth with adjacent land.

There would be dilution of 1% to IHH’s earnings in FY2025 from higher interest expenses from borrowings to fund the proposed acquisition before a 1% increase in FY2026 from “improved performance and operational synergies”, according to CIMB Securities’ estimates.

Both CIMB Securities and Hong Leong Investment Bank maintained "buy" calls on IHH.

IHH, controlled by Malaysia's sovereign wealth fund Khazanah Nasional Bhd, operates in 10 countries with Malaysia, Singapore, Türkiye, India and China as key markets.

With the addition of Island Hospital, IHH now owns 18 hospitals in Malaysia, including three in Penang, besides Gleneagles Hospital and Pantai Hospital.

Shares of IHH rose 0.6% or four sen to RM6.41, bucking broader market decline, at 4.45pm. At that price, the company has a market capitalisation of RM56.72 billion.