PETALING JAYA: Khazanah Nasional Bhd is likely to dispose of a 10% stake in IHH HEALTHCARE BHD, marking the start of its asset rationalisation exercise.
The block in IHH is likely to be taken up by Japanese public-listed conglomerate Mitsui & Co Ltd, sources said.
When the transaction is completed, Mitsui will see its shareholding increasing from 18.03% to about 28%, while Khazanah will see its shareholding in IHH being trimmed down to about 30%.
“The block of shares is likely to be sold at a premium to the market price, as it is a strategic block. And this is consistent with Khazanah’s new direction, which is to be less involved in running the business and no longer holding strategic stakes in so many companies,” the source added.
Following this sale, Khazanah will still retain its position as the single largest shareholder in IHH, but with a smaller stake.
IHH’s third-largest shareholder is the Employees Provident Fund, which holds an 8.86% stake in the company, according to latest filings with the stock exchange.
Khazanah and Mitsui have been involved with each other before buying and selling each other’s stakes in IHH prior to this.
Earlier reports said that Mitsui had some years back in April 2011 acquired a 30% equity interest in the hospital operator – then called Integrated Healthcare Holdings Sdn Bhd – from Khazanah for RM3.3bil, or RM2 per share.
Mitsui & Co’s stake was diluted to 20.32% during IHH’s initial public offering in July 2012.Subsequently, it was reported in September 2016 that Mitsui & Co had sold about a 2% stake in IHH for RM1.02bil, or RM6.20 per share, in a direct business transaction that saw its shareholding being trimmed down to around 18%.
Should this transaction go through, it will be the second time that shares between Khazanah and Mitsui have changed hands.
IHH’s shares rose 6.71% or 33 sen to close at RM5.25 yesterday, its highest level in 1.5 months.
The increase in its share price came despite it having recorded a net loss of RM104.07mil in its third quarter ended Sept 30, 2018.
Analysts are expecting stronger earnings ahead for IHH in view of the strategic corporate exercises to expand its regional footprint, and its efforts to reduce the impact of its subsidiary’s non-Turkish lira-denominated borrowings.
They are positive on the prospects of the group in spite of it slipping into the red in the third quarter.
The net loss, incurred on the back of a 1.4% higher revenue of RM2.84bil, was mainly due to the recognition of foreign exchange (forex) losses of RM752.5mil on subsidiary Acibadem Holdings’ non-Turkish lira-denominated borrowings.
Excluding the forex losses, however, its profit more than doubled from a year ago to RM309mil as a result of the stronger operational performance and forex gains from a stronger US dollar on the group’s US dollar-denominated cash balances.
Maintaining its “buy” call on the counter, MIDF Research said it remained wary of the external challenges faced by IHH in the short term, given the depreciating lira and the consolidation of India’s Fortis Healthcare Ltd.
“Fortunately, the lira has seen about a 15% recovery since September 2018, partially alleviating investors’ concerns.
“In addition, we are also confident that IHH can perform a turnaround on Fortis within two years, given its expertise and understanding of the Indian market,” the research house said.
It added that IHH’s increased exposure in India could power the group into its next phase of growth. The group’s balance sheet also remains robust, with a net gearing of 0.04 times and a strong cash flow from operations.
It has revised its financial year 2018 (FY18) and FY19 earnings forecast upwards by 18.2% and 19.2% to take into account the higher revenue intensity at the Achibadem operations.
This, it said, could result in higher cash balances, enabling the group to pare down foreign-denominated debts earlier than anticipated.
Kenanga Research, however, expects the group to face tough operating conditions over the medium term, on the back of continued volatility in the lira and execution risks at Fortis, as well as uncertainty over a turnaround in profitability for the Indian healthcare group.
The research house, however, has raised its net profit expectations for FY18 and FY19 by 13% and 6%, taking into account the group’s better-than-expected performance in the third quarter.
It has maintained its “underperform” call on the counter and downgraded its target price to RM4.60 from RM5.10.
Click here for Khazanah statement confirming asset rationalisation exercise: