SUNWAY organised its inaugural Corporate Day Series focusing on its healthcare segment for the sell-side fraternity yesterday. We were hosted by Dato’ Lau Beng Long (MD for Sunway Healthcare Group) and Dr Seow Vei Ken (CEO of Sunway Medical Centre) for a tour around Sunway Medical Centre (SMC) at Sunway City. Post visit, we are further convinced that the healthcare segment would anchor growth for the group starting in FY25 with its new hospitals, and the targeted listing of this division by 2029 is well intact. Maintain our forecasts, SoP-based TP of RM2.05 and OUTPERFORM call.

Key takeaways from the visit are as follows:

1. A branded tertiary care service provider. Sunway Medical Centre Sunway City (the flagship hospital) houses a wide range of medical specialties and its capability to invest in high CAPEX medical equipment’s has appealed to many patients seeking tertiary treatments. Throughout the years since operations began in 1999, Sunway Medical’s brand name has grown leaps and bound and is now a household name trusted by many in the Klang Valley. This robust branding coupled with the well supported infrastructure has also attracted new and established doctors to partner with Sunway Healthcare.

2. Existing and future hospitals. Currently, Sunway Healthcare operates two hospitals (SMC Sunway City and SMC Velocity) with a capacity of 856 beds with utilisation at c.70% - which is considered high. Within the next 2 years, the bed capacity will increase exponentially to c.2,485 beds with the expansion of their two existing hospitals coupled with three new hospitals at Penang Mainland (Nov 2022), Kota Damansara (1QCY24) and Ipoh (2QCY24) (refer to page 2 for table). Key new business areas Sunway Healthcare plans to pivot into include elderly living and post-natal confinement centres. With the new hospitals in place, Sunway Healthcare’s business model will allow for cross referrals between hospitals to maximise revenue generation.

3. Profitability. To recap, Sunway Healthcare Group (84% owned by SUNWAY and 16% by GIC) generated RM75m PAT in 1HFY22. This is record high profit as patient count has recovered nicely and is now above pre-pandemic levels. While we anticipate the healthcare segment to register all time high profits in FY22, FY23 and FY24 will see slight negative earnings growth before showing growth again in FY25 given the gestational losses expected from the three new incoming hospitals. That said, the new hospitals are expected to break even faster than industry norm as established doctors with existing patients are coming onboard.

Overall, we returned from our visit with a stronger conviction for Sunway’s healthcare segment. We believe the targeted listing date by 2029 is well intact and tentative valuation of RM7.3b to RM8.6b is highly possible. Recap that the target listing date and potential valuations were established last year when SUNWAY sold 16% of Sunway Healthcare to GIC (Singapore’s sovereign wealth fund).

Keep SoP-TP of RM2.05. We continue to like SUNWAY for: (i) its healthy pipeline of medical centres located within brownfield townships, (ii) quick turnaround model for its property development arm, and (iii) a diversified range of investment assets which provides stable earnings base. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5). Maintain OUTPERFORM.

Risks to our call include: (i) prolonged slowdown in the local property market, (ii) rising mortgage rates hurting affordability, (iii) rising construction cost, and (iv) changes in home ownership policies in local and overseas operations.

Source: Kenanga Research - 5 Oct 2022