IHH's potential acquisition of Ramsay-Sime Darby to provide greater synergies

Ara Damansara Medical Centre is one of the hospitals operated by Ramsay Sime Darby Healthcare

KUALA LUMPUR: Analysts have given the thumbs up to IHH Healthcare Bhd's proposal to acquire the healthcare joint venture between Ramsay Health Care Ltd and Sime Darby Holdings Bhd as it expands on its network of private hospitals in Malaysia.

In a recent announcement, IHH submitted a non-binding indicative proposal to purchase 100% equity in Ramsay Sime Darby Health Care Sdn Bhd for an indicative enterprise value (EV) of RM5.67bil.

"We are positive on this latest corporate development by IHH since Ramsay Sime Darby have a stable of 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," said Kenanga Research in a report.

The research firm said the purchase is relatively cheap based on the indicative EV, which works out to EV/Ebitda of 25 times on FYE June 2021 Ebitda of RM226mil, which is lower than the recent transaction where GIC Pte Ltd paid for a stake in Sunway Healthcare at 31.3 times.

In addition Ramsay Sime Darby's FYE June 2021 profit is RM20mil, which has minimal impact to Kenanga's FY22 earnings estimate.

The research firm said the acquisition would raise IHH's net gearing from 17% to 42% as at Dec 31, 2021.

While it maintained its "market perform" recommendation and target price of RM6.65 for now, Kenanga said the successful completion of the acquisition could raise its target price on IHH by 3% to 4%.

Meanwhile, Hong Leong Investment Bank (HLIB) Research noted in a report that the acquisition would be supportive of IHH's refreshed strategy to achieve greater economies of scale.

"We are positive on the potential acquisition given that RSDH’s hospitals in Malaysia are all centred in the Klang Valley (Subang Jaya, Ara Damansara, Desa Park City and Klang) and this complements IHH’s cluster strategy to seek growth by emphasizing on geographical clusters.

"Acquisition of RSDH would also enable IHH to expand into the Indonesia market and strengthen its foothold in Hong Kong, as RSDH operates three hospitals in Indonesia and one day-surgery facility in Hong Kong currently," it added.

HLIB maintained its "buy" rating on IHH with a target price of RM7.75.