SINGAPORE (June 6): CIMB is maintaining its “add” call on IHH Healthcare Berhad as it believes the private hospital operator is on the hunt for an M&A target after having fully divested its stake in Apollo Hospitals.
In a Tuesday report, analyst Lim Siew Khee refers to her colleague Jonathan Seow’s report which was published a day earlier.
Seow says IHH is looking for an M&A target to put to good use its net cash proceeds of RM1.26 billion ($408 million) for the sale of its 10.85% stake in Apollo a hospital chain based in Chennai, India.
Media reports have linked IHH with Fortis, “which makes sense given Fortis has one of the largest footprints in India and apparently willing to cede management control,” says Lim.
(See also: IHH Healthcare 1Q earnings double on divestment gain; sells remaining stake in Apollo Hospitals)
Seow says IHH is a leader in private healthcare with one of the largest hospital networks in Asia and an experienced management team with a “stellar track record”.
He also views the group’s Apollo divestment as a move that “paves the way for a more aggressive strategy” as he believes the proceeds will be reinvested as part of a broader strategy in India.
Although investors think the stock is expensive, Seow says the group’s risk-reward profile is now “very attractive” as he is confident in its management’s ability to deliver on Gleneagles HK.
“India currently only forms c.6% of group revenue but we think this will be much bigger five years later and become an important growth driver. Media reports have linked IHH Healthcare with Fortis, which makes sense given Fortis has one of the largest footprints in India and apparently willing to cede management control,” says Lim.
“Fortis or not, we believe IHH has M&A plans given that it is still relatively underrepresented in India and management views India as a high growth market,” she adds.
CIMB has a target price of RM6.84 for the stock. Shares of IHH are trading at $1.92 and RM6.04 in Singapore and Malaysia respectively.
