News/ Comments

• In a filing to Bursa Malaysia, IHH Healthcare announced that it has acquired a 51% stake in Continental Hospitals Limited (CHL) for RM166.73m.

• CHL is a 750-bed hospital situated in Hyderabad. Currently have internationally -recognized healthcare professionals from over 30 specialties.

• Continental Hospitals has been accredited by JCI (Joint Commission International, USA) – which is the highest body of accreditation in the world. Also, CHL has completed NABH Accreditation (highest accreditation in the country given to hospitals for quality care in December 2014, obtained within less than 18 months. Financial Impact

• With cash of RM3.0bn as at FY14, we believe IHH Healthcare will have no issue funding the acquisition.

• Given that it is only a small acquisition outlay and CHL only has one hospital, we believe the impact on earnings will be marginal.

• This would enable IHH to set a stronger foothold in the Indian healthcare market. Nonetheless, we feel it would post a risk of conflict with its current ly -owned Apollo Hospital Enterprises, India’s largest private hospital chain.

Catalysts

• Global population growth, ageing demographics, more affluent community, proliferation of medical tourism and overwhelming healthcare demand.

Risks

• Regulatory / competitive / FOREX risks, increase in staff cost and unable to unlock synergies of the enlarged entity.

Forecasts

• Unchanged, pending further clarification from the management.

Rating

SELL , TP: RM4.16

Positives

• strong brand name, booming of medical tourism,high demand for quality healthcare services, continuous expansions and complemented by education arm.

Negatives

• high staff cost and retention of reputationalmedical practitioners.

Valuation

• Reiterate SELL with unchanged SOP-derived TP of RM4.16 as we believe the valuation to be too rich.

Source: Hong Leong Investment Bank Research - 24 Mar 2015