News

• IHH announced that it had on the 22 nd of March 2018 entered into a term sheet for collaboration with Khazanah Nasional Bhd for “shared services and operational improvement initiatives at Prince Court Medical Centre”.

• Subsequently, IHH will be given a right of first offer to acquire Prince Court Medical Centre during a pre-agreed period.

Highlights

• We understand from several media sources as well as Petronas’s own announcement that Khazanah has entered into a share sale and purchase agreement for Prince Court Medical Centre with Petronas for an undisclosed sum.

• This disposal is not surprising as it’s in line with the national oil giant’s consolidation strategy in disposing its non-core assets. The disposal is expected to be completed by 2Q18.

• Prince Court Medical Centre is a 270 bed private hospital located within the KLCC enclave. It was first established in late 2007 and namely caters for residents of the KLCC precint as well as Petronas’s executive staff. We also understand that Prince Court has remained in the red since time immemorial.

• From IHH’s perspective, we are neutral on this announcement as it is Khazanah’s deal at this juncture. IHH’s role at this moment will be to provide its expertise to turn around the business. It is understood that Khazanah aims to make Prince Court Medical Centre one of the top destinations for medical tourism in the region.

• As at FY17, the group has a net gearing position 0.03x and a cash balance of RM6.1bn. As such IHH has the balance sheet strength and the bullets to acquire Prince Court, assuming that the group exercises its right of first offer within the ascribed time frame and the groups fundamentals does not deviate at that juncture.

• This announcement is not expected to have any material impact to the group’s earnings or gearing in its present form.

Risks

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

Forecasts

• Unchanged.

Rating

• Whilst we like IHH for its exposure to key gateway markets, good management and strong reputation, earnings delivery in the near term will be hampered by higher pre-operational costs as the new hospitals take time to mature. Maintain HOLD .

Valuation

• We maintain our SOP-derived TP of RM6.07 .

Source: Hong Leong Investment Bank Research - 23 Mar 2018