Affin Hwang positive on IHH proposed acquisition of Fortis

IHH Healthcare also has operations in Turkey.

KUALA LUMPUR: Affin Hwang Capital Research is positive on IHH Healthcare Bhd's proposal to acquire Fortis Healthcare through the issuance of new shares and an open offer.

IHH said on Friday that its proposed acquisition of a controlling stake in Fortis is via a combination of a proposed subscription of 235 million new Fortis shares through a preferential allotment and a mandatory open offer for Fortis and Fortis Malar of up to 26% each.

Affin Hwang noted that the offers value Fortis and Fortis Malar at historical EV/EBITDA of 22.3x and 53.6x respectively.

The research house said headline valuations are a premium to its peers due to depressed earnings although it believes there is underlying value to normalised valuation sof 15x FY19E EV/EBITDA.

"Value is expected to be unlocked over the next 12-18 months, primarily through operational cost savings and refinanced borrowing cost. Strategically, Fortis offers greater scale, accelerates healthcare penetration into India and compliments existing geographical spread, into the more lucrative northern region of India."

"We expect the acquisition to be value accretive to existing IHH shareholders at a range of RM7.55-RM7.65 from our existing IHH valuation of RM7.10 without straining the balance sheet at 1.4x-2.1x net debt-EBITDA. The penultimate valuation is dependent on the acceptance level of Fortis’ open offer," it said.

Affin Hwang reaffirmed its buy rating on IHH with a target price of RM7.10.