News

According to sources quoting Business Times, IHH Healthcare has bought a 74% stake in Global Hospitals Group shareholdings for Rs 1,800 crore (RM1.1bn). The enterprise value is Rs 2,150 crore (including Rs 350m debt) (RM1.31bn). The remaining 26% will continue to be owned by Global Hospitals’ founder Dr K Ravindranath, the sources said.

Global Hospitals is one of the largest healthcare providers in India with presence in cities such as Mumbai, Bengaluru, Chennai and Hyderabad, with an operating profit of Rs 130 crore (RM80m). It has a 2,000-bed Multi Super Specialty Tertiary Care facility spread across Hyderabad, Chennai, Bangalore and Mumbai. Global Hospitals is a pioneer in Multi-Organ Transplants including kidneys, liver, heart and lung.

If this is true, IHH is further expanding its foothold in India following its acquisition of Continental Hospitals in 1Q2015.

Comments

This is a positive newsflow for IHH considering that Global Hospitals specialises in the niche organ transplants segment of the market. The addition of Global Hospitals will further enhance IHH’s capabilities as well as provide a more complete suite of integrated healthcare services to patients, reinforcing its position as the leading private healthcare provider in Asia Pacific.

For illustration purposes, the total effective operating profit due to IHH is RM59m or 3% of our FY16E operating profit forecast. This acquisition would only put a small dent to IHH’s net gearing, which stood at 11% as at 31 Mar 2015.

Outlook

Growth driver in the next five years will come from the following:- (i) In Singapore, the gradual ramp up of Mount Elizabeth Novena of which the first phase 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 (schedule to open by 2H15), Pantai Hospital Kuala Lumpur (phase 1 to commence operation in Mar15), Pantai Hospital Klang (expected completion end 2016) and Pantai Hospital Ayer Keroh (expected completion end-2017). Greenfield projects meanwhile, namely Gleneagles Kota Kinabalu (to commence operation in May15) and Gleneagles Medini (phase 1, 150 beds target completion in 2H15), and (iii) In Turkey, Acibadem is currently undertaking expansion projects for two hospitals, Acibadem Sistina (target completion 2Q15) Skopje Clinical Hospital, Acibadem Bodrum (target completion in 3Q15) and Acibadem Maslak Hospital (target completion in 2017) while Acibadem Altunizade is a greenfield development (target completion in 2016).

Forecast

No changes to our FY15E and FY16E numbers.

Rating & Valuation

Maintain UNDERPERFORM. Our target price is RM5.00 based on SoP. The stock is currently trading at PERs of 57x for FY15E and 52x 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-than-expected expansion in its greenfield and brownfield projects.

Source: Kenanga Research - 6 Aug 2015