KUALA LUMPUR: Analysts are positive on IHH Healthcare Bhd
’s acquisition of Bedrock Healthcare Sdn Bhd (BHSB) for RM245mil cash.
IHH’s subsidiary, Pantai Holdings Sdn Bhd has inked a share purchase agreement (SPA) with Saravita Holdings Sdn Bhd and nine individual founders for the acquisition.
BHSB operates an 82-bed hospital, Timberland Medical Centre (TMC), in Kuching, Sarawak and has earmarked a vacant land in central Kuching for the construction of a 200-bed hospital.
MIDF Research believes the acquisition would be to IHH's advantage, considering that Sarawak had been developing its industrials and oil and gas sectors, which translated to potentially more demand for hospital care.
“Medical tourism is also expected to play a role, as domestic travels to the state had rapidly increased in CY22 by +138% to 15.5 million domestic visitors, with an expected additional +20% rise by the end of CY23,” MIDF said.
Additionally, it noted that the aging population in Sarawak is increasing at a rate of 0.55% per year, since 2020.
It is expected that by 2028, Sarawak would be officially an ageing state, with the current population standing at approximately 312,000, which consisted of 12.6% of Sarawak’s population.
“We opine that, with an increase in the aging population, specialist hospitals that tended to specific age-related diseases would be in high demand in the near future.
“Kuching population is also forecasted to increase at a 5-Year CAGR of 2.3%. We anticipate that additional healthcare service providers in Kuching would be necessary in the long run, hence we are positive on this acquisition plan,” MIDF said.
“All in all, we like IHH for its medium to long-term growth strategies as a healthcare service provider and with the demographic gradually returning to pre-pandemic demand for healthcare, in addition to the increased in senior citizen population requiring more healthcare services, we maintain positive on IHH’s prospects and operational excellence,” it said.
The research house has maintained its “buy” call on IHH with a target price of RM6.57.
Meanwhile, RHB Research said according to its channel checks, the RM245mil price tag represented 12x over TMC’s EBITDA.
“We deem the valuation as fair given the transacted valuation is lower than IHH’s 12-month forward EV/EBITDA of 14x. Based on our back-of-the-envelope calculation, the consolidation of TMC could potentially yield a 2% upside to IHH’s Malaysia 2024F EBITDA.
“Although the earnings accretion does not seem material in the near term, management sees potential synergies on achieving better operating efficiency with TMC going forward. We also do not rule out the possibility that TMC will serve as a medical centre to attract medical tourists given its close proximity to the Kuching International Airport aside from being surrounded by several 3-4 star hotels,” RHB said.
The research house has maintained its estimates pending regulatory approval of the acquisition.
Kenanga Research said the acquisition will expand IHH’s footprint in Sarawak and also allow the group to scale up TMC’s operations via a greenfield hospital. Specifically, BHSB has earmarked a vacant land in central Kuching for the construction of a 200-bed hospital.
“We gathered that the valuation is at 12x EV/EBITDA for a private hospital operator commanding an EBITDA margin in the high teens with a profitable bottom line.
“Driven by procurement synergies and cost efficiency under the cluster strategy, we expect the EBITDA margin from this hospital to be above 20%,” it said.
Kenanga said the acquisition will marginally increase IHH’s net debt and net gearing of RM4.5bil and 0.16x as at March 31, 2023 to RM4.7bil and 0.17x. The transaction is expected to be completed by 1HCY24.
“Looking ahead into 2023, we expect IHH’s revenue per inpatient growth of 10%−15%, inpatient throughput growth of 10%−15%, and bed occupancy rate (BOR) of 60%−73% for its hospitals in Malaysia, Singapore, India and Türkiye,” it said.
