IHH to gain from return of medical tourists

PETALING JAYA: IHH Healthcare Bhd is poised to benefit from the resilient demand for healthcare services and the return of medical tourists post-borders reopening.

This, together with the Indian Supreme Court clearing IHH of any wrongdoings for its investment in Fortis Healthcare case have resulted in RHB Research reiterating its “buy” call on the stock.

“The Supreme Court also disposed the contempt of court petition. We understand the current decision by the court on the acquisition of RHT Health Trust (RHT) by Fortis remains an overhang, as the High Court – the executing court – can still initiate a forensic audit if it deems the transaction as inappropriate,” it added.

Post the final court order, IHH is currently in talks with the relevant authorities to determine the next course of action in pursuing its mandatory takeover offer or MTO for a remaining 26% stake in Fortis.

“IHH reiterates its commitment to honour the MTO once the relevant authorities grant the approvals,” RHB noted in a report after a briefing with IHH.

The research house felt “upbeat” post the management briefing, given the near-term hurdle for IHH has been resolved.

“However the lingering RHT-Fortis deal may continue to weigh on near-term investor sentiment until the final court order is released,” it noted.

Fortis’ share price has plunged by 17% since a sell down on Sept 21.

“Prior to this selldown, the firm accounted for 7.7% of IHH’s market cap based on the latter’s 31% stake in the former. Based on our back-of-envelope calculations, the sell down on IHH is deemed as unreasonable, given the implied correction should be only 1.3% – it has dropped 3.1% since Sept 21,” RHB said.

RHB Research made no changes to its earnings estimates on IHH pending confirmation of the deal.

“We reiterate our ‘buy’ call and RM7.42 target price (TP), as we have incorporated a 0% environmental, social and governance premium and discount to our intrinsic value.

“If the MTO is successfully carried out, this would mean a potential 4% upside to our current TP and 3% upside to our 2023 core earnings.” RHB said key risks for IHH include the ongoing litigation, lower-than-expected patient volume and revenue intensity, and higher-than-expected operating costs.

India’s Supreme Court recently ordered a forensic audit of the share sale in Fortis in 2018 and refused to allow the mandatory open offer from IHH to proceed.

IHH acquired a 31% stake in Fortis in 2018 from Malvinder Singh and Shivinder Singh, to became its largest shareholder. They then made the open offer for 26% more shares which could have helped IHH anchor its position in the company.

The court wants a probe into sale of shares in Fortis by lenders and transfer of money to RHT Health Trust on a petition filed by Daiichi Sankyo Co.

The Japanese drug maker had acquired drug making firm, Ranbaxy Laboratories Ltd in 2008 from the Singh brothers.

In 2016 Daiichi won an arbitration award worth US$500mil (RM2.3bil) against the Singh brothers who assured their stake in Fortis will cover the award amount.

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