IHH Healthcare - Maybank Kim Eng 2019-01-17: Acquired Hospitals In India

IHH HEALTHCARE BERHAD (SGX:Q0F)

IHH Healthcare - Acquired Hospitals In India

IHH Healthcare’s 31%-owned Fortis has completed the acquisition of RHT Health Trust’s hospital assets in India which Fortis operates at. The purchase valuation is fair and would help Fortis in reducing losses. This would lift IHH Healthcare’s earnings slightly but increase its net gearing significantly after the open offer for Fortis is completed.
Maintain our earnings forecasts, BUY call and SOP-based Target Price of MYR6.45. Refer to the PDF report attached for breakdown of the SOP valuations.

IHH HEALTHCARE BERHAD (SGX:Q0F)’s 31%-owned Fortis Healthcare (FORH IN) has completed the acquisition of RHT HEALTH TRUST (SGX:RF1U)’s 19 hospital assets in India for a total cash consideration of INR46.7b (SGD895m/ MYR2.7b). The assets being purchased are located in where Fortis operates at presently.

We think the valuation is fair:
1. it is within the independent valuer’s fair value of INR45.3b-51.8b as at Mar 2018;
2. the net disposal gain to RHT Health Trust is only SGD16m (or 2% of the total consideration).
The transaction would help Fortis in saving significant clinical establishment fees which it used to pay to RHT Health Trust (INR1.9b vs. Fortis’ INR2.4b net loss in 1HFY3/19) and result in better profitability/cash flows.
We estimate that the net gearing would rise to around 45% (Sep 2018: 30%), considering IHH Healthcare’s cash injection of IDR40b into Fortis in Oct 2018.

As IHH Healthcare only holds 31% equity stake in Fortis now, it will see lower associate losses on its P&L and is not required to consolidate the higher gearing into its Balance Sheet yet. The mandatory open offer for 26% of Fortis (bringing IHH Healthcare’s stake in Fortis to 57%) is currently on hold due to the legal proceeding between Fortis’ founders and Daiichi Sankyo (pending dates for the petition hearing).
After the exercises (purchase of RHT Health Trust’s assets and open offer for Fortis Healthcare), IHH Healthcare’s net gearing is expected to increase to 40% (4% as at Sep 2018).

Lee Yen Ling Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-01-17

SGX Stock Analyst Report BUY MAINTAIN BUY 6.450 SAME 6.450