KUALA LUMPUR (June 8): Analysts are positive on IHH Healthcare Bhd's plan to divest its medical education arm, IMU Health Sdn Bhd, for an enterprise value of RM1.35 billion, as the move will allow the company to dispose of its non-core assets at a relatively attractive valuation and further strengthen its core hospital business.
The group reached an agreement with Inbound Education Holdings on Tuesday (June 7) to sell 100% of its stake, or 1.14 million shares, in IMU. Under the agreement, IMU will also sell IMU Education (IMUE), which is still under construction, to Columbia Asia Sdn Bhd. The consortium of investors is led by The Rise Fund (founded by TPG) and Hong Leong Group.
IMU controls 100% of the share capital of IMUE, IMC Education, IMU Healthcare and 60% of the shares in IMU Dialysis.
Despite IHH losing its education arm, MIDF Investment Bank Bhd believes the handsome gain from the divestment of IMU to the consortium of investors will be advantageous to IHH in the long run, as it continues to concentrate on its hospitals, medical operations and equipment, research and diagnostics, and digital healthcare.
"We continue to view IHH positively for its comprehensive expansion and growth plans, as well as a strong and focused balance sheet. All in, we maintain our 'buy' call with an unchanged target price (TP) of RM7.96 per share on IHH," it said in a note on Wednesday (June 8).
In addition, MIDF said the disposal of IMU is not expected to result in a significant dent on IHH's financial performance. "As at FY21, the division only contributed to about 1% of the total revenue and 3% of the total profit. Hence, we make no changes at this juncture to our earnings forecasts. We are of the opinion that IHH is moving within our trajectory range," said the research house.
Meanwhile, Hong Leong Investment Bank (HLIB) Research, which kept its "buy" call for IHH with a TP of RM7.75, said the disposal did not come entirely as a surprise.
"We are positive on this development, as the enterprise value of RM1.345 billion implies an EV/EBITDA multiple of 16.6x (based on IMU's adjusted EBITDA of RM81.4 million in FY21), which is at an 80% premium to SEGi's EV/EBITDA of 9.2x.
"Post disposal, IHH will cease to consolidate the results of IMU. IMU accounts for [about] 1.4% of our FY22-24f revenue forecasts and we note that the segment has been providing a consistent profit contribution of [about] RM55 million to the group in the recent years (with the exception of FY20). Hence, we estimate a loss of income of [about] 3% for FY23- 24f, once the deal is completed. Assuming all the cash proceeds received (RM1.346 billion) are used to repay debts, [the] gearing ratio will also decline from 0.21x in 1QFY22, to 0.16x," said HLIB.
Kenanga Research, on the other hand, reiterated its "market perform" rating for IHH with a TP of RM6.65.
Based on Kenanga's back of envelope calculation, if the divestment goes through, its TP for the stock is expected to rise by 1.5%.
At the time of writing on Wednesday, IHH's share price rose five sen or 0.77% to RM6.55, translating into a market value of RM57.66 billion.