News

• An article in StarBizWeek stated that the potential sale of Mahkota Medical Centre has attracted the interest of IHH Healthcare Bhd.

• It is said that the price could be lower than the indicative US$250m (RM912.5m).

• One of the largest private hospitals in the southern region of Peninsular Malaysia, Mahkota Medical Centre is a 266-bed hospital located in the heart of Malacca City on Jalan Merdeka.

• If it materialises, this would be the second hospital owned by IHH Healthcare in Malacca. IHH Healthcare already has a presence in the state through the 250-bed Pantai Hospital Ayer Keroh which is located about 10km away from Mahkota Medical Centre.

Comments

• If this is true, we believe the group will have no issue in buying the asset as it currently has cash of RM3.0bn as at FY14.

• This bodes well with IHH expansion appetite as it would enable the group to further stamp its footprint in Malacca. It could pose a threat to IHH’s existing operation in Malacca. However, on another account, it would provide IHH Healthcare an additional income.

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.

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 reputational medical practitioners.

Valuation

• Reiterate SELL with unchanged SOP-derived TP of RM4.16 (see Figure #1) as we believe the valuation to be too rich.

Source: Hong Leong Investment Bank Research - 13 Apr 2015