News/ Comments

• In an announcement to Bursa Malaysia, IHH announced that its indirect subsidiary, Acibadem Saglik Hizmetleri (Acibadem) has acquired a Bulgaria-based Tokuda Hospital and subsidiaries as well as a merger with City Clinic Group via a Share Purchase Agreement (SPA).

• The total consideration of both proposed acquisitions amounts to EUR 75.97m (equivalent to circa RM334.42m), of which EUR 65.0m (equivalent to circa RM286.13m) is for the acquisition of Tokuda Group and remaining EUR 10.9m (RM48.29m) for City Clinic Group.

• Located in Bulgaria, Tokuda Group is one of the largest private healthcare service providers. Its Tokuda Hospital Sofia (THS) has over 550 operational beds.

• In addition, the group’s medical center (Tokuda Medical Centre, TMC) has a contract with Bulgarian National Health Insurance Fund. TMC would be able to attract more medical insured patients under this collaboration.

• Also a leading integrated healthcare provider, City Clinic Group currently operates three hospitals (has the only Joint Commission International accredited hospital in Bulgaria) and outpatient centers, with its facilities located across Sofia, Varna as well as Burgas.

• We are mildly positive on these acquisitions as they validate IHH’s continued expansion plan. By venturing into Bulgaria, it will provide a wider platform for IHH to further expand its business portfolio. The acquisitions will increase Acibadem’s number of hospitals to 22 with approximately 3500 beds.

• Nevertheless, earnings impact is expected to be minimal, while ownership of IHH in its indirect subsidiaries may be diluted slightly given the SPA.

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

HOLD TP: RM6.23

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

• Maintain our HOLD call and SOP-derived TP of RM6.23 (see Figure #1).

Source: Hong Leong Investment Bank Research - 22 Apr 2016