A Fortis hospital building is pictured in New Delhi. Suitors including Chinese conglomerate Fosun International Ltd are vying for Fortis after the company
KUALA LUMPUR: Maybank Investment Bank Research retained its Buy call for IHH Healthcare and sum-of-parts based target price of RM6.45.
It said on Thursday IHH’s 31%-owned Fortis had completed the acquisition of RHT’s hospital assets in India which Fortis operates at.
“The purchase valuation is fair and would help Fortis in reducing losses. This would lift IHH’s earnings slightly but increase its net gearing significantly after the open offer for Fortis is completed,” it said.
To recap, RHT’s 19 hospitals in India were bought for a total cash consideration of 46.7bil rupees (SG$895mil or RM2.7bil). The assets are located in where Fortis operates at presently.
“We think the valuation is fair: (i) it is within the independent valuer’s fair value of 45.3bil to 51.8bil rupees as at March 2018; (ii) the net disposal gain to RHT is only S$16mil (or 2% of the total consideration).
“The transaction would help Fortis in saving significant clinical establishment fees which it used to pay to RHT (1.9bil rupees vs. Fortis’ 2.4bil rupees net loss in 1HFY3/20) and result in better profitability/cash flows.
“We estimate that the net gearing would rise to around 45% (Sep 2018: 30%), considering IHH’s cash injection of 40bil rupees into Fortis in October 2018,” it said.
Maybank Research said as IHH only holds 31% equity stake in Fortis now, it will see lower associate losses on its P&L and is not required to consolidate the higher gearing into its balance sheet yet.
The mandatory open offer for 26% of Fortis (bringing IHH’s stake in Fortis to 57%) is currently on hold due to the legal proceeding between Fortis’ founders and Daiichi Sankyo (pending dates for the petition hearing).
After the exercises (purchase of RHT’s assets and open offer for Fortis Healthcare), IHH’s net gearing is expected to increase to 40% (4% as at September 2018).
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