Sunway's healthcare unit divestment plan a positive move — HLIB Research

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KUALA LUMPUR (Sept 4): Hong Leong Investment Bank (HLIB) Research is positive on the news about Sunway Group Bhd partially divesting itself of a stake in its healthcare unit.

This comes after Bloomberg reported yesterday that Sunway was looking to divest itself a stake of 20%-25% in Sunway Medical Centre Bhd (SMC) that could fetch at least US$250 million (RM1.04 billion) and that non-binding bids were expected to close as soon as October.

The report indicated that proceeds from the disposal would be used for hospital expansion.

Meanwhile, according to Sunway's filing with Bursa Malaysia today, it has appointed Maybank Investment Bank Bhd to explore strategic investment options for its healthcare portfolio.

This, it said, is in line with the company's objective to enhance shareholders' value as the company continues to explore and evaluate various options for all its businesses.

"We are positive on the news as it will give a benchmark valuation to its healthcare division as we believe the market has yet to fully appreciate the value of this unit. Furthermore, this figure implies a much higher valuation for the segment vis-à-vis the one imputed in our SOP (sums-of-parts)," HLIB Research said in a note today.

The research house said it gathered that these strategic shareholders will be able to help enhance Sunway's healthcare operations, aside from assisting on funding.

HLIB said as the article mentioned that the process might not necessarily lead to a deal, it believes that Sunway's management has to be comfortable with the bidders in creating value and not just based solely on bid valuation.

Based on a 20% stake for US$250 million with an exchange rate of RM4.17 per US$1, the healthcare unit is implied to be valued at RM5.2 billion.

"By imputing RM5.2 billion for the healthcare segment into our SOP (10% holding discount), our TP (target price) would amount to RM2.59. The RM5.2 billion would also imply a forward price-earnings of [about] 75 times in comparison to IHH's [about] 61 times.

"We note that this implied premium has likely taken into account the upcoming income streams from the expansions over the next three to four years," it added.

HLIB Research has reaffirmed its "buy" call for Sunway with an unchanged TP of RM1.95 based on a 10% holding discount to SOP-derived value of RM2.17.

It said Sunway remains its top pick in the property sector given its well-integrated property and construction developments. The value of the healthcare business (with new hospitals and the SMC expansion coming on stream over the next three years) has yet to be appreciated as it is embedded within the parent-co.

This, coupled with the resilient earnings from matured investment properties alongside its growing building materials business and quarry operations, justifies the rerating of the stock, it added.

At noon break, Sunway's share price closed unchanged at RM1.4, valuing it at some RM6.81 billion. There were some 1.74 million shares done.

Surin Murugiah