KEY INVESTMENT HIGHLIGHTS

• IHH Healthcare had proposed acquisition of Island Hospital for RM4b with expansion land valued at RM223m
• Strategic location, high-quality asset, powerhouse for medical tourism in Penang
• Revised FY26-27 earnings forecast, catering to additional expected revenue of +15% from acquired hospital
• Maintain BUY with TP: RM7.35

Acquiring the best hospital in Penang. IHH Healthcare (IHH) had proposed the acquisition of the Island Hospital Sdn Bhd (IHSB) in Penang.

The private hospital boasted a premise with 600 bed capacity and 500 operational beds, coupled with a strong accreditation by the Australian Council on Healthcare Standards and over 10 Centre of Excellence. The acquisition will be made in cash of RM3.92b, financed with internal funds and external borrowings which is expected to be accretive to its earnings from FY26.

High quality asset in strategic location. IHSB is a high-quality asset, given its: (i) existing 119 qualified and experienced medical resident and visiting specialist, (ii) 42k inpatient admissions and over 430k outpatient visits annually, (iii) average revenue per patient is RM12,000, and (iv) top 5 specialties are in orthopaedic, gastro, cardiology, oncology and general surgery. Additionally, its location in Penang is strategic for IHH to leverage on medical tourism, especially from Indonesia. We believe IHSB could provide bigger opportunities to double IHH's revenues from medical tourism as it currently serves 1 out of 3 inbound medical tourists into Malaysia.

Higher potentiality of expansion. The acquisition also includes the vacant land with approvals secured for future development near the established premises, which is roughly valued at RM223m. IHSB had been an attractive investment as it is known as a powerhouse of supporting medical tourism in the last 30 years.

Synergies to begin within a year from acquisition. IHH will realise potential revenue and cost synergies with the acquired assets starting in CY25 for 5 years; expecting a value creation of over RM200m. With IHSB, IHH will operate 3 hospitals in Penang, with an expected total of over 1k operational beds, which will enable better coordinated patient care, optimize resource utilization and streamline services. IHH is expected to spend less on IHSB facilities post-acquisition, as IHSB is well-maintained, consequently resulting in overall improved performance and services in its Malaysia front in the long run.

Source: MIDF Research - 5 Sep 2024