SIME and Ramsay Health Care Ltd have received a confidential, conditional, non-binding, indicative proposal from IHH Healthcare to acquire their JV, Ramsay Sime Darby Health Care SB (RSDH) for RM5.67bn (or US$1.35b) cash. The indicative proposal implies 25x EV/EBITDA based on FYE June 2021 EBITDA of RM226m which is lower than a recent transaction where GIC Private Limited paid for a stake in Sunway Healthcare at 31.3x. Nevertheless, given the slower recovery of healthcare business and SIME’s on going efforts to rationalise its non-core assets, and with earnings impact of just 1% at the group level, we reckon the take-over price as fair. BUY with a TP of RM2.60 implying a PER of 14.8x on FY23E EPS.

Sime Darby Holdings Bhd (SDH) and Ramsay Health Care Ltd (Ramsay) have received a confidential, conditional, non binding, indicative proposal from IHH Healthcare Bhd (IHH) to acquire 100% of their 50:50 joint-venture, Ramsay Sime Darby Health Care SB (RSDH). The indicative proposal is subject to: (i) completion of satisfactory due diligence; and (ii) negotiation and finalisation of a sale and purchase agreement. Both SDH and Ramsay SDH have agreed to a period of exclusivity for four weeks when due diligence commences to allow IHH to conduct due diligence and negotiate a sale and purchase agreement. The discussions between SDH, Ramsay and IHH are preliminary, and no agreement has been reached yet.

Based on SIME’s FY21 results, RSDH contributed share of profit of RM15m, or 1.3% of our FY22E CNP, which means fairly minimal impact to the group earnings and NTA position (less than 1.0 sen). The proceeds from this proposal could be distributed as a special dividend or to fund future expansion on its core Motors and Industrial division. Note that, SIME has previously announced a special DPS of 4.0 sen derived from the disposal gain of Tesco Malaysia (RM294m). We could probably see similar quantum of special DPS.

Rationale of the proposal. We believe that the indicative proposal is aligned to SIME’s on-going efforts to rationalise its non-core assets since the demerger with SIME Property and SIME Plantation, hence we welcome the take-over proposal of this peripheral asset.

Source: Rakuten Research - 23 Mar 2022