News  In an announcement to Bursa Malaysia, IHH Healthcare wholly-owned Medi-Rad Associates Ltd proposed to buy 100% stake in Radlink-Asia Pte Ltd (Radlink) from Fortis Healthcare Singapore Pte Limited for SGD137m (equivalent to RM347m) cash.

 Under the terms of the SPA, the completion of the proposed acquisition is subject to satisfaction of certain conditions precedent, which includes the Competition Commission of Singapore making a favourable decision in respect of the proposed acquisition.

 The RadLink Diagnostic Group is Singapore’s largest private diagnostic and molecular imaging chain, comprising four Diagnostic Imaging centers, a PET/CT scan centre and a Cyclotron facility. Specifically, Radlink provides radiology scans such as X-rays, Ultrasounds, Mammograms, Bone Density, MRI, and CT scans. The other three diagnostic centres focus on general radiology services and are catered for the general practitioner market.

Comments  We are positive on this latest corporate development by IHH considering that RadLink would compliment its existing healthcare portfolio. Specifically, Radlink’s ten Radiologic clinics in Singapore are seeing good demand. The addition of RadLink will further enhanced IHH’s capabilities as well as provide a more complete suite of integrated healthcare services to patients and further reinforces its position as the leading private healthcare provider in Asia Pacific and CEEMENA.

 This acquisition would only put a small dent to IHH’s net gearing of 0.12x as at 30 June 2014.

 Based on our estimates, this acquisition would only increase IHH’s FY15 net profit by 1.5-2%.

Outlook  Growth driver in the next five years will come from the following; (i) In Singapore, the gradual ramp up of

Mount Elizabeth Novena Hospital of which the first phase comprising 150 (of total 333) beds (all single-bed rooms) and 13 operating theatres, which have already commenced operations in July 2012, (ii) In Malaysia, PPL is currently undertaking expansion projects in four hospitals, Gleneagles Kuala Lumpur, Pantai Hospital Kuala Lumpur, Pantai Hospital Klang and Pantai Hospital Ayer Keroh. Greenfield projects meanwhile, namely Gleneagles Kota Kinabalu and Gleneagles Medini will add an estimated 500 beds by end 2014 to end 2016, (iii) In Turkey, Acibadem is currently undertaking expansion projects for two hospitals, Acibadem Sistina Skopje Clinical Hospital, Acibadem Bodrum and Acibadem Maslak Hospital while Acibadem Altunizade is a greenfield development.

Forecast  No change to our earnings forecasts.

Rating & Valuation Maintain Underperform with an unchanged SoP target price of RM4.20. The stock is currently trading at PERs of 53x for FY14E and 48x for FY15E, which appear rich as compared to its expected average net profit growth of 13.5% p.a. over FY14E and FY15E.

Risks to Our Call  Faster turnaround in its greenfield and brownfield projects.

Source: Kenanga