Bigger coffers: Patients wait to collect their medication at an IHH Healthcare hospital in the Klang Valley. The firm’s balance sheet will be boosted by the sale of IMU Health.
IHH Healthcare Bhd
will see its balance sheet being bolstered following its proposed RM1.35bil sale of IMU Health Sdn Bhd.
Its gearing will drop to a very low level of 0.16 times from 0.21 times following the sale, with its net debt reducing by over 20% to RM4.58bil.
Other than repaying its debt, the group says it also plans to use proceeds from the planned sale for capital expenditure, mergers and acquisitions or M&As, investments and working capital.
It would be used for such purposes in the 12 months after the proposed sale is completed, IHH says in its circular to Bursa Malaysia.
This would put IHH in a position for more inorganic growth as it seeks acquisition or merger targets, should such opportunities arise.
The sale of IMU Health is expected to be completed in the first quarter of 2023 and would see IHH receive investment gains of almost RM902mil, IHH says.
This, the group notes, is calculated based on an original cost of investment of RM308.67mil which the group had invested and was incurred in 2010 and 2011.
The proposed sale also includes the sale of a hospital under construction that IMU Health owns.
While IMU is being sold to Inbound Education Holdings Sdn Bhd (IEH), the hospital is being sold to Columbia Asia Sdn Bhd (CASB).
Meanwhile, the potential new owners of IMU Health are no strangers to the healthcare scene.
IEH is owned by the Hong Leong Healthcare Group Sdn Bhd (45%), The Rise Fund Inbound SF Pte Ltd (45%) and the Employees Provident Fund (9.99%).
The Rise Fund is part of the United States-based private equity company TPG group and the fund was founded in 2016 in partnership with Bono and Jeff Skoll, its website states.Hong Leong Group and TPG are also the owners of Columbia Asia Hospitals in South-East Asia. They bought these assets in September 2019.
Analysts say that the IMU sale is beneficial for IHH, as it will enable it to monetise its non-core assets, allowing for the proceeds to be invested into its core areas of business.
“This is consistent with its strategy to focus on strengthening its healthcare operations in existing markets.
“It also is in line with its plan to extend its footprint into new adjacent markets based on its cluster strategy approach which it has good operating knowledge of,” Public Investment Bank Research (PublicInvest Research) says.
The proposed sale is priced at an enterprise value (EV) to earnings before interest, taxes, depreciation and amortisation (Ebitda) of 16.6 times.
“We think the valuation is fair as it is comparable to the disposal of Paramount Education in 2019, which was transacted at an EV-to-Ebitda of 16 times,” it adds.
PublicInvest Research has maintained its “outperform” call on IHH with an unchanged target price of RM7.60 per share.
MIDF Research, meanwhile, points out that the IMU disposal is not expected to result in a significant dent to IHH’s financial performance.
IMU Health had contributed to about 1% of IHH’s total revenue and 3% of total net profit in its financial year 2021 ended Dec 31 (FY21).
“Hence, we make no changes to our earnings forecasts.
“We are of the opinion that IHH is moving within our trajectory range,” MIDF Research says.
MIDF Research has maintained its “buy” call on IHH with an unchanged target price of RM7.96, noting the handsome gains from this divestment will be advantageous to IHH in the long run.
It also notes the positive outlook of IHH and its comprehensive expansion and growth plans along with its strong balance sheet.
Kenanga Research, which is keeping its profit forecast for IHH for FY22 and FY23 unchanged, has a sum-of-parts target price of RM6.65.
“Based on our back-of-the-envelope calculations, if the divestment goes through, our target price is expected to rise by 1.5%,” says Kenanga Research.
