IHH Healthcare Bhd
(Feb 10, RM5.22)
Maintain neutral with unchanged target price (TP) of RM4.50. Unofficial reports from The Edge Financial Daily and a local daily suggest IHH and American private equity firm TPG Capital Management LP are looking to acquire a controlling stake in India’s Global Hospitals. The deal that would value the privately-owned chain at US$350 million (RM1.24 billion).

The Indian healthcare market is seen as more lucrative, attributed to the increase in more affluent Indian patients who are willing to pay for better healthcare services.

Pending further clarification and results scheduled to be released on Feb 26, we remain “neutral” on IHH with our unchanged TP of RM4.50.

Global Hospitals group operates a 2000-bed multi super speciality tertiary care facility across Hyderabad, Chennai, Bangalore and Mumbai, and is an established healthcare services provider in India.

As a simple guidance, in 2013, a buyout of a 10% stake in Global Hospitals was valued at about three billion Indian rupees (RM173 million) which, when used to estimate the current expected value of IHH’s possible deal at US$350 million, would suggest IHH and TPG are taking up an approximate stake of 70%.

Pending further announcements and clarification from IHH, we believe an investment in Global Hospitals would be advantageous for IHH, as it will further strengthen its position in the region, in addition to its existing 11% stake in Apollo Hospital Enterprises, India’s prominent private hospital chain. IHH can also benefit from Global Hospital’s strong experience in the market.

Our TP remains unchanged at RM4.50 pegged to financial year 2015 (FY15) blended enterprise value over earnings before interest, taxes, depreciation and amortisation valuations.

We believe the group will continue to see strong revenue growth underpinned by its capacity expansion, especially as more beds are added in 2015, with the newly opened hospitals expected to contribute to the group’s revenue.

Nonetheless, we maintain our “neutral” call on IHH as we believe the stock is richly valued for now at 44 times FY15 price-earnings ratio. — PublicInvest Research, Feb 10

This article first appeared in The Edge Financial Daily, on February 11, 2015.