IHH Healthcare Bhd - CGS-CIMB Research 2018-10-08: Acquiring Another 30% In Acibadem

IHH HEALTHCARE BERHAD (SGX:Q0F) | SGinvestors.io IHH HEALTHCARE BERHAD SGX:Q0F

IHH Healthcare Bhd - Acquiring Another 30% In Acibadem

  • To acquire 30% additional equity interest in Turkey-based Acibadem, bringing its total stake to 90%, via issuance of 524.5m new IHH shares.
  • No cash outlay with net gearing unchanged, but enlarged share capital means potential 7.6% EPS dilution.
  • We are positive on the consolidation as it accords IHH with greater operational flexibility to reduce FX exposure and divest assets going forward.


Increasing its stake in Acibadem to 90% at no cash outlay

  • IHH announced its proposed consolidation of interest in Acibadem Saglik Yatirimlari Holdings (Acibadem) to approximately 90%. This will come in the form of
    1. exercise of option by Mehmet Ali Aydinlar and his wife to convert around 15% equity interest in Acibadem for c.262.2m new IHH shares; and
    2. an exercise of a similar option by Bagan Lalang Ventures (a wholly-owned subsidiary of Khazanah Nasional Berhad) to convert around 15% equity interest in Acibadem for c.262.m new IHH shares.
  • Mr Mehmet Ali Ayinlar, the founder of Acibadem Holding, will continue to own 10% interest. This transaction is subject to approval from Bank Negara. IHH expects the deal to conclude by end-4Q18F.



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Financial impact from the consolidated ownership

  • With the enlarged share base and including an one-time acquisition fees of RM3.7m, management estimates potential EPS dilution of 7.6% to IHH's FY17 reported earnings on a proforma basis.
  • We expect net gearing to remain unchanged post the transaction (2Q18: 4.2%).


A step in the right direction

  • Post this acquisition, IHH will capitalise US$250m equivalent of Acibadem's existing subordinated loans which are currently supported by Acibadem’s shareholders, thereby reducing its FX exposure from the current US$680m (as at end-2Q18).
  • This consolidation of ownership also allows management more financial and operational flexibility to restructure its Turkish business, which possibly includes divestment of some non-core assets and lowering its FX exposure to an estimated level of US$200m-250m. Management remains open to swapping Acibadem's foreign debt to lira, once the currency stabilises.
  • We continue to like IHH for its regional presence and premium healthcare offering.
  • Upside/downside risks could stem from the turnaround of Gleneagles Hong Kong and Turkish lira movements.





NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-08
SGX Stock Analyst Report ADD Maintain ADD 6.630 Same 6.630



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