The  Edge  reported  that  IHH  Healthcare  Berhad  has  made  an  offer  for Makhota  Medical  Centre  in  Melaka.   The  hospital  which  is  owned  by Singapore-listed  Health  Management  International  Ltd  is  estimated  to  be worth US$250m (RM892.5m). (Source: Edge Financial Daily)

Comments:  We  view  this  news  positively  as  the  acquisition  is  consistent with  IHH’s  strategy  to  focus  on  expanding  through  expansion  and  M&A opportunities.  We  understand  that  this  hospital  provides  specialized services  including  chemotherapy  day  care  and  in  vitro  fertilization  which are services which IHH has yet to provide at this juncture. Therefore, this would  widen  the  services  offered  by  IHH.  Furthermore,  the  hospital  also owns offices in Indonesia, Cambodia and Singapore which are likely able to  help  IHH  in  attracting  more  foreign  patients  for  medical  tourism purposes.

Although management has not guided how it will fund this acquisition, we believe  that  funding  for  the  acquisition  would  not  pose  an  issue  for  the group. Note that 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  0.11x,  which  we  believe  is  still  at comfortable  levels.  Pending  further  updates  and  confirmation  of  the acquisition  from  management,  we  are  maintaining  our  earnings  forecast. BUY  maintained  with  a  TP  of  RM6.07.

Source: Affin Hwang Capital Research - 7 May 2015