IHH Healthcare - DBS Research 2016-04-22: Entry into Bulgaria

IHH HEALTHCARE BERHAD Q0F.SI

IHH Healthcare - Entry into Bulgaria

M&A to produce the largest private healthcare operator in Bulgaria. Total transaction at EUR76m (MYR333m)
To own four hospitals (adding 750 beds) and four medical centres
In line with expansion plans into Central Eastern Europe

IHH Healthcare Berhad (IHH) announced that its 60%-owned subsidiary, Acibadem (via the latter’s subsidiary) has signed definitive agreements to acquire a Bulgarian-based hospital, Tokuda Hospital Sofia and to merge with City Clinic. This is in line with Acibadem’s plans to expand its operations into Central Eastern Europe and the Balkan Region.
We do not envisage any significant impact in the near term.
We maintain our HOLD recommendation and TP of RM6.33/S$2.09.
While we like the geographical diversification and premium healthcare services provider status, we believe current valuation at c. 54x FY16E PE reflects this.

Acibadem will acquire 100% of the Tokuda Group for EUR65m (~MYR285m) and subsequently merge with City Clinic into a new combined entity, Acibadem City Clinic via the acquisition of a 33% stake in the current City Clinic for EUR11m (~MYR48m).
Acibadem will then own 76.5% of Acibadem City Clinic, with City Clinic owning the remaining 23.5%. The transaction will be funded by Acibadem’s internal cash.
Post the M&A, Acibadem will own four hospitals with 750 beds and four medical centres. This will bring Acibadem’s total number of beds to more than 3,500 across 22 hospitals.

The 52,000-sqm, 550-bed Tokuda Hospital Sofia is the first private hospital and currently the largest in Bulgaria. It is located in Sofia, the capital of Bulgaria. Tokuda Hospital Sofia operates a multidisciplinary service with over 30 medical departments and 22 operating theatres.
It has won various awards in the past. The recent awards include “Best private hospital in Bulgaria” and “Best outpatient centre in Bulgaria” from Bulgarian Association for Patients’ Protection, and “Best foreign patients customer service“ in 2015.

City Clinic is a leading high-quality integrated healthcare provider, especially in the cardiovascular and oncology specialisation. It owns three hospitals and three outpatient centres in Sofia (cardiovascular and cancer centre with 84 inpatient beds, five operating rooms), Varna (medical centre) and Burgas (cardiology centre).
Post the merger, Acibadem City Clinic will dominate the market for cardiovascular and cancer care in Bulgaria.

Being part of the European Union and its strategic locations, the hospitals currently attracts patients from neighbouring countries such as Germany, Belgium, Russia and the Middle East.

Rachel Lih Rui Tan DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-04-22

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