IHH Healthcare - Maybank Kim Eng 2021-12-16: Dissecting Its Regional Strategy; Maintain BUY


IHH Healthcare - Dissecting Its Regional Strategy; Maintain BUY

  • Given the recent hints about potential asset divestments, we assess IHH Healthcare (SGX:Q0F)’s portfolio of assets in order to better understand its regional footprint strategy. In short, we think a potential divestment of its China assets is unlikely in the near term, given the cost of investments are much higher vs recent hospital transactions.
  • Additionally, the recent completion of asset divestments reflects IHH Healthcare’s ability to recycle its capital through other avenues to fund its cluster-focused expansion strategies.
  • We make no changes to our forecast. Maintain BUY with a SOP-based target price of RM7.48.

China ops likely to remain in IHH’s portfolio

  • Recent news reports have suggested that IHH Healthcare may sell its China operations (3 hospitals with 1300 beds plus 7 clinics) with a price tag of up to US$1bn - however, recent transactions of Chinese hospitals thus far in 2021 suggests that the implied price of US$212k per bed is much lower vs IHH Healthcare’s cost of investment of approximately US$488k per bed (US$635m total) across its three hospitals.
  • IHH Healthcare’s portfolio in Greater China are still loss-making, hence this perhaps could also limit its ability to command a huge premium over the perceived market price, despite the sale being likely to immediately boost the groups’ bottom-line.

Capital availability is decent given current appetite

  • We believe IHH Healthcare has the ability to raise funds through borrowings given its manageable net gearing of 22% as at 3Q21.
  • Additionally, IHH Healthcare also recently managed to raise capital through the completion of several divestments of Indian hospitals (62% stake in Continental Hospitals and 50% in Apollo Gleneagles) that were deemed as non-core assets.
  • Lastly, IHH Healthcare’s current preference to defer ambitious expansion until 2023/24 could mean that the group could wait it out to gain better pricing terms.

Cluster-focused expansion plans

Shafiq Kadir Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-12-16
SGX Stock Analyst Report BUY MAINTAIN BUY 2.430 SAME 2.430