■ Entered into a JV to lease and operate a 350-bed hospital in Chengdu, China. This is LT positive, providing a stronger foothold in an underpenetrated high demand market.
■ Hospital is expected to open in 2H17 and we expect it to be EBITDA positive in 2 years; no change to our EPS forecasts.
■ Maintain HOLD and TP of MYR6.35 as we believe the positives from its LT prospects have been priced in.
IHH has entered into a 70:30 JV with Shanghai Broad Investments to lease and operate a 350-bed tertiary hospital in Chengdu, China. This will be IHH’s first hospital in China, with equity ownership. Regulatory approvals are expected to be obtained in 3-6 months and more financial information will be provided after that. The hospital is expected to open in 2H17 and will be located in Perennial International Health and Medical Hub, which is part of Perennial’s Chengdu East High Speed Railway Integrated Development. It will offer specialised care and services such as obstetrics & gynaecology, paediatrics, cardiology, orthopaedics, ophthalmology and internal medicine.
This new hospital will complement IHH’s existing presence, where it operates 11 medical centres and a hospital in Shanghai under a Hospital Management Agreement. IHH also operates another medical centre in Hong Kong, and is constructing the 500-bed Gleneagles Hong Kong Hospital, expected to open in early 2017.
What’s Our View
We view this deal positively as it provides a stronger foothold in an underpenetrated market, with strong demand for quality healthcare services. Upfront capex should be manageable via internal funds or new debts with a low net gearing of 0.12x end-Jun 2015. No change to our FY17 forecast for now which would have a half year but an estimated marginal impact.
Maintain HOLD and TP as we believe the positives from its LT prospects are in the price in. IHH trades at 22x FY16 EV/EBITDA, above its peers’ 19x average. (Read Report)
Source : Maybank Kim Eng Research