• Given the recent hints about potential asset divestments, we assess IHH Healthcare's portfolio of assets in order to better understand its regional footprint strategy. In short, we think a potential divestment of its China assets is unlikely in the near term, given the cost of investments are much higher vs recent hospital transactions.
• Additionally, the recent completion of asset divestments reflects IHH Healthcare’s ability to recycle its capital through other avenues to fund its cluster-focused expansion strategies.
• We make no changes to our forecast. Maintain BUY with a SOP-based target price of RM7.48.

China Ops Likely to Remain in IHH’s Portfolio

• Recent news reports have suggested that IHH Healthcare may sell its China operations (3 hospitals with 1300 beds plus 7 clinics) with a price tag of up to US$1bn - however, recent transactions of Chinese hospitals thus far in 2021 suggests that the implied price of US$212k per bed is much lower vs IHH Healthcare’s cost of investment of approximately US$488k per bed (US$635m total) across its three hospitals.
• IHH Healthcare’s portfolio in Greater China are still loss-making, hence this perhaps could also limit its ability to command a huge premium over the perceived market price, despite the sale being likely to immediately boost the groups’ bottom-line.

Capital Availability Is Decent Given Current Appetite

• We believe IHH Healthcare has the ability to raise funds through borrowings given its manageable net gearing of 22% as at 3Q21.
• Additionally, IHH Healthcare also recently managed to raise capital through the completion of several divestments of Indian hospitals (62% stake in Continental Hospitals and 50% in Apollo Gleneagles) that were deemed as non-core assets.
• Lastly, IHH Healthcare’s current preference to defer ambitious expansion until 2023/24 could mean that the group could wait it out to gain better pricing terms.

Cluster-focused Expansion Plans

• Aside from the high-growth China market, IHH Healthcare aims to further expand its footprint in Europe as part of its strategy to funnel more medical tourism to its Turkey hospitals. Moreover, more focus will be placed on improving the operational performances of Fortis hospitals to capture the high growth potential of private healthcare services in India.

Source: Maybank Kim Eng Research - 16 Dec 2021