Prince Court hospital to contribute only 1% to IHH’s group earnings


On Tuesday, IHH announced it was buying Prince Court Medical Centre for cash consideration of RM1.02bil which works out to an implied EV/Ebitda (enterprise value/earnings before interest, tax, depreciation and amortisation) of 23.2 times which is at the higher-end of peer KPJ’s 14.7 times valuation.

KUALA LUMPUR: Kenanga Research expects Prince Court Medical Centre Sdn Bhd to to contribute less than 1% to IHH Healthcare’s group earnings based on the hospital’s normalised FY18 net profit of RM26mil.

In its research note issued on Wednesday, it also said the acquisition will only put a small dent to IHH’s net gearing of 0.2 times as at June 30, 2019.

On Tuesday, IHH announced it was buying Prince Court Medical Centre for cash consideration of RM1.02bil which works out to an implied EV/Ebitda (enterprise value/earnings before interest, tax, depreciation and amortisation) of 23.2 times which is at the higher-end of peer KPJ’s 14.7 times valuation.

“No changes to our FY19E/FY20E earnings forecasts for now. Reiterate underperform. Target price is RM4.85 based on sum-of-parts valuation,” it said.

It said the purchase price of RM1.02bil worked out to 23.2 times EV/Ebitda based on FY18 Ebitda of RM44mil. Based on Prince Court’s normalised net profit of RM26mil, the deal works out to 39.2 times price-to-earnings ratio.

Prince Court is one of the key strategic private hospitals in the Klang Valley which is expected to enable IHH to leverage on its wide network of hospitals to deliver potential synergies and offerings.

Prince Court Medical Centre operates 277 licensed beds, offering a wide range of medical, surgical and hospital services including cancer, gastrointestinal diseases, interventional cardiology, invitro fertilisation, nephrology, occupational health, orthopaedic and rehabilitation medicine.

The acquisition is expected to be completed by 1Q 2020.

“The group has pared down US$250m equivalent of its non-lira debt for Acibadem in April as part of on-going plan to reduce the exposure to Turkish lira’s volatility. The remaining balance of US$300mil is expected to be pared down sometime in 2020.

“We are concerned over issues at Fortis, including an auditor’s qualified audit report in FY18, risk of more provisions, lapses in internal controls, which led to the regulatory probing, which could well mean execution risk.

“Looking ahead, over the medium term, IHH is expected to face tough operating conditions on the back of: (i) the uncertain Turkish lira which has depreciated significantly against US$, euro and ringgit with continued volatility, and (ii) execution risk at Fortis as well as uncertainty over its timeline in terms of a turnaround to profitability,” it said.


   

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