Thursday, 14 March 2013

IHH Healthcare - Greenfield hospital in Hong Kong

-  We maintain our HOLD recommendation on IHH Healthcare Bhd (IHH), with an unchanged fair value of RM3.25/share, based on a sum-of-parts valuation.

-  GHK Hospital Ltd, a 60%-owned indirect subsidiary of IHH, has successfully won a public tender for the acquisition of a site in Wong Chuk Hang, Hong Kong, as well as for the construction, development and operation of a private hospital. The area measures 27,500sqm, with a potential gross floor area of 46,750sq.

-  IHH will be teaming up with one of Hong Kong’s top property developers for the development of a greenfield hospital. The estimated capital investment amounts to about RM2bil (inclusive of the land cost amounting to RM675mil), to be financed via internal funds and bank borrowings.

-  The development of the hospital is slated to be completed by late-FY16 with a total bed capacity of 500 beds. The hospital will offer a full range clinical services, with over 15 specialists. These include general medicine, general surgery, orthopaedics, and gynaecology.

-  Additionally, Li Ka Shing Faculty of Medicine of the University of Hong Kong will act as the clinical partner as well as oversee the clinical governance, professional standards, appointment of doctors and the training of doctors, nurses and allied healthcare staff.

-  This latest development is positive as it strengthens IHH’s international presence and foothold in Hong Kong. Furthermore, opportunities exist in this huge and under-served market, given the lack of quality healthcare coupled with growing demand. Presently, IHH operates one hospital in Hong Kong through contractual and trust agreements.

-  More importantly, the group has mapped up its expansion plans beyond FY15. Further to that, IHH continues to widen its international market share beyond its three home markets.

-  All in, there is no change to our earnings estimates at this juncture. Any earnings impact will likely be seen from FY16F onwards.

-  IHH has an implied EV/EBITDA multiple of 19x for FY13F, which is at a 27% premium to its peers’ average of 15x. We believe IHH’s strong franchise value and earnings trajectory have been priced in. Having said, IHH’s expansion plan is well-mapped out and it continues to lead in Singapore, Malaysia and Turkey.

Source: AmeSecurities

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