News

In an announcement to Bursa Malaysia, IHH Healthcare’s wholly-owned Gleneagles Development Pte Ltd, is acquiring 71.1m shares or 51% stake for a total consideration of INR2,818,830,000 million (equivalent to RM166.7m) in Continental Hospitals Limited (CHL).

The principal activity of CHL is delivering primary, secondary, tertiary and quaternary healthcare services.

Continental Hospitals is a 750-bed super specialty hospital dedicated to excellence in medical services. Ever since the group first opened their doors in March 2013, Continental has been defining new frontiers in healthcare by building an environment driven by interdisciplinary collaboration and innovative practice inthe field of medicine.

Comments

We are positive on this latest corporate development by IHH considering that Continental Hospital specialises in the quaternary segment (High-intensity complex clinicalprocedures) of the healthcare business. The addition of Continental will further enhance IHH’s capabilities as well as provide a more complete suite of integrated healthcare services to patients and further reinforce its position as the leading private healthcare provider in Asia Pacific and CEEMENA.

We understand that the hospital is presently at breakeven level (EBITDA) with 200 beds in operationsout of a maximum 750. Note that the hospital has only been in operations for less than two years.

This acquisition would only put a small dent to IHH’s net gearing, which stood at 10% as at 31 Dec 2014.

Outlook

Growth driver in the next five years will come from the following: (i) In Singapore, the gradual ramp up of Mount Elizabeth Novena involving the first phase of Mount Elizabeth Novena Hospital comprising 150 (of total 333) beds (all single-bed rooms) and 13 operating theatres,(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 between 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 RM4.58. The stock is currently trading at PERs of 53x for FY15E and 49x for FY16E, which appear rich as compared to its average net profit growth of 11% p.a. over FY15E and FY16E.

Risks to Our Call

Faster turn around in its greenfield and brownfield projects.

Source: Kenanga Research - 24 Mar 2015