<ALERT> IHH Healthcare (IHH) – Monetising and optimising portfolio
- Divesting IMU, non-core asset for a total enterprise value of RM1.3b to a consortium led by TPG and Hong Leong Group.
- Expected to record gains of c. RM0.9b in FY2023 when transaction completes, a contributor to a stellar FY2023 financial performance.
- We view the divestment a fair transaction and believes that IHH has marked its move to optimise its portfolio as it monetises its assets to further expand and enhance its cluster strategy.
- Maintain BUY; TP of RM7.90 / SGD2.45.
IHH Healthcare announced the divestment of International Medical University (“IMU”) for a total enterprise value of RM1,345m (US$306m) to a consortium led by The Rise Fund, TPG’s multi-sector global impact investing platform, and the Hong Leong Group.
IMU, the largest medical and healthcare-focused higher education institute in Malaysia will be divested to Inbound Education Holdings Sdn Bhd (“IEHSB”) which is held by the consortium comprising Hong Leong Group (45%), The Rise Fund (45%) and EPF (9.99%) for RM1.2m. The hospital that is still under-construction will be acquired by Columbia Asia which is indirectly owned by Hong Leong Group and TPG, holding approximately 49.95% each. The under-construction hospitality is valued at RM139m, less an outstanding bank loan amount of RM38m as at 31 Dec 21.
The transaction is expected to be completed by 1Q2023.
Our Views
Divestment of non-core assets to streamline and optimise its portfolio. We believe this is part of IHH’s effort to optimise its portfolio with the divestment of non-core assets. While the performance of IMU has been relatively stable over the years, IMU only contributes minimally to IHH’s total group’s financials, ie, c.1% to IHH’s FY21 total revenue, c. 2% to EBITDA and c.3% to PATMI. While the divestment proceeds may not be very large (c.3% of IHH’s total assets), we believe the proceeds from the monetisation of the assets could be recycled into its healthcare operations portfolio as IHH seeks to streamline its portfolio based on the cluster strategy.
Expect a stellar FY2023 results contributed by the handsome divestment; valuation appears to be fair. IHH is expected to recognise RM902m gains post the divestment, c.48% of FY21 net profit. Based on the divestment price, the assets are valued at EV/EBITDA (FY21) of 16.5x. While there is lack of comparative transactions, the transaction appears to be fair
Maintain BUY; TP of RM7.90 / S$2.46. We maintain our positive stance on IHH. Despite potential macroeconomic headwinds, we believe it stands to benefit from the reopening from the return of medical tourism and elective procedures to offset declining contribution from COVID-19 services. With the realisation of the divestment of its non-core asset, we believe IHH is embarking on a journey to optimise its portfolio in the healthcare services space and making effort to improve its earnings quality. It is currently trading close to -1.5 std dev.
