This article first appeared in The Edge Financial Daily on November 30, 2018

KUALA LUMPUR: Shares in IHH Healthcare Bhd climbed as much as 52 sen or 9.9% to RM5.77 apiece yesterday after its largest shareholder, Khazanah Nasional Bhd said, that it is disposing of a 16% stake in the healthcare player to Mitsui & Co Ltd, the second-biggest stake, for RM8.42 billion or RM6 per share.

The stock had pared gains at the closing bell, up 25 sen or 4.76% to finish at RM5.50 with 15.58 million shares traded yesterday. IHH’s market capitalisation expanded to RM43.35 billion.

Following the divestment, Mitsui would become the largest shareholder in IHH with a 32.9% stake while Khazanah’s shareholding would drop to 26.05%. This is based on the IHH’s enlarged share capital after its completion of an additional 30% equity interest in Acibadem Saglik Yatirimlari Holding AS, which was announced on Oct 8 this year.

The purchase consideration represented a premium of 9.1% to the group’s closing price yesterday and an even higher premium of 14.29% to the group’s closing price the day before. That said, most analysts with an eye on the stock are “positive” on the prospects of the healthcare group, which has set its foothold in many parts of Asia, including China and Turkey, although the group dipped into the red in its third quarter ended Sept 30, 2018 (3QFY18).

Foreign exchange losses from the depreciation of the Turkish lira dragged IHH into a net loss of RM104.07 million in 3QFY18 versus a net profit of RM82.09 million a year earlier. Revenue grew 1% to RM2.84 billion from RM2.8 billion in the previous year’s corresponding quarter on the back of growth in existing operations.

According to Bloomberg data, 19 out of 26 analysts have an average target price (TP) of RM6.06 for IHH. There are 15 “buy” calls on the counter.

PublicInvest Research called IHH a “long-term play, underpinned by its aggressive focus on establishing larger network of hospitals in its new home markets.” Despite this, the research house in a note yesterday sounded a note of a caution about the gestation period of the healthcare group’s new hospitals. On the other hand, Kenanga Research maintained its “underperform” rating on the stock with one of the lowest TPs at RM4.60, reduced from RM5.10 earlier. This was due to the enlarged share base following the additional acquisition of Acibadem and factoring in Fortis, the research house said in a note yesterday.

Khazanah had announced via a statement yesterday that the proceeds of its disposal of the 16% stake in IHH would be used for new investments and capital requirements. It also said that the divestment is subject to the relevant regulatory approvals and the completion of the Acibadem acquisition. As such, the disposal of the stake is expected to be completed by the 1Q19.