IHH  Healthcare  Berhad  announced  that  it  has  acquired  a  51%  stake  in Continental Hospitals Limited for INR 2,818,830,000 (RM 166.7m) (Source: Bursa Malaysia)

Comments:  We  view  this  news  positively  as  the  acquisition  is  consistent with IHH’s  strategy  to  focus on  its  expansion  in  emerging market  through M&A opportunities. In view of India’s larger population and bigger scale of operations, we believe that this is positive for the group as they continue to expand its footprint into India. Note that, IHH already owns a 10.5% stake in Apollo  Hospitals,  India  while  Continental  Hospitals  is  a  750-bed  specialty hospital  which  focuses  on  providing  tertiary  and  quaternary  care  in Hyberbad, India. Earnings of Continental Hospitals are not disclosed.

Although management has not guided how it will fund this acquisition, we believe that funding for the acquisition would not pose issue for the group because as at 4Q14, the group has a net gearing ratio of 0.09x. Assuming the acquisition if fully funded via borrowings, the group’s net gearing ratio would  increase  to  0.1x,  which  we  believe  is  still  comfortable.   Pending further details of the acquisition from management, we are maintaining our earnings forecast unchanged with a TP of RM6.07.

Source: Affin Hwang Capital Research - 24 Mar 2015