Kenanga raises valuation on Sunway on healthcare stake sale


KUALA LUMPUR: Kenanga Research is positive over Sunway Bhd's stake sale in its healthcare business to Singapore's soveriegn wealth fund GIC (Ventures) Pte Ltd based on the high enterprise value valuation and opportunities presented.

The research house said the RM750mil injection into Sunway Healthcare for a 16% stake is 22% higher that what it had ascribed to the business, which is a strong testament to its deep value.

The equity injection will also help Sunway Healthcare fund its hospitals expansion plan while maintaining a healthy net gearing under 0.5x.

Sunway Healthcare is expected to incur a capex of about RM2.5bil to increase its existing bed count from 740 to about 3,000.

Meanwhile, the deal will also provide the investment fraternity a clear timeline for an eventual IPO to monetise the assets, said Kenanga.

As a caveat for the RM750mil injection, GIC will require 12.5% IRR per annum, which means Sunway Healthcare will have to go for an IPO listing by the eighth year upon the first set of conditions precedents being met to provide GIC the option to cash out their investment.

Based on Kenanga's calculations, it believes Sunway Healthcare can meet the minimum market cap required to meet the 12.5% IRR requirement.

"Assuming Sunway Healthcare fetches an EBITDA multiple of 18x upon listing (straddling between IHH’s 19x and KPJ’s 13x), it will require an EBITDA of c.RM450m/annum to hit the RM7.3b market cap target (or EV of RM8.0b as we assumed net debt of RM0.7b).

"With their current bed count of 740 already raking c.RM130m EBITDA/annum, we think the targeted EBITDA is achievable as extrapolating to 3,000 beds will

provide an EBITDA of RM530m/annum," it said.

Kenanga maintained its FY21/22 earnings projections unchanged as income dilutio from the stake sale will be marginal.

It maintained a "market perform" recommendation with a higher sum-of-parts-derived target price of RM1.95 from RM1.77 previously.
Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 46
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights
   

Next In Business News

Easing restrictions will boost US airlines but business travel still unclear
Investors grappling with Evergrande fallout weigh risk of wider pain
Oil falls 2% on risk aversion, US$ strength
Chevrolet Bolt EV battery production resumes
Wall Street ends sharply lower in broad sell-off
No change seen in CPO windfall tax
Coal prices surge as power crunch upends effort to cut emissions
Investors taking a wait-and-see approach
Dayang expects higher oil prices to lift Q3 results
HLIB fourth-quarter earnings at RM39.84mil

Stories You'll Enjoy


Vouchers