IHH Healthcare’s proposed acquisitions to reduce operating costs
KUCHING: IHH Healthcare Bhd’s (IHH Healthcare) proposed acquisition of land and building in Manjung, Perak is poised to enable the healthcare services provider to reduce operating costs in the long run.
The research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) said IHH Healthcare’s wholly- owned subsidiary Pantai Medical Centre Sdn Bhd (PMCSB) is currently leasing the land and property from Kar Sin Sdn Bhd (KSSB), a wholly-owned subsidiary of YNH Property Bhd (YNH) since 2014.
IHH Healthcare’s proposed acquisition of land and building in Manjung is expected to result in cost savings for the company in the long run.
Besides that, it noted the acquisition will also enable IHH Healthcare to benefit from the price appreciation of the property in the future.
In the meantime, KSSB is currently the registered owner of the land and property despite having sold the property to YNH Hospitality Sdn Bhd (YNHSB) back in March 2015.
The research firm explained that was due to the mutual agreement between the two parties which resulted in KSB being the registered owner of the property while YNHSB is the beneficial owner of the property.
To note, IHH Healthcare in a filing to Bursa Malaysia on January 26 said the company via PMCSB has entered into a sales and purchase agreement (SPA) with YNHSB and KSSB for the proposed land and building acquisition.
The company added it was for the proposed acquisition of a parcel of freehold land together with a five-storey purpose-built private hospital with 384 surface carparks – formally known as Pantai Hospital Manjung, located in Manjung District, Perak.
MIDF Research noted the proposed acquisition was for RM63 million and is expected to be completed within three months.
On another note, the research firm noted the net book value of the property was at RM51.17 million as at December 31, 2015.
Assuch, MIDFResearch observed that IHH Healthcare is planning to purchase the land and building at a premium of approximately 23.5 per cent.
Despite the premium pricing, the research firm believed the potential future savings in operations and future bed expansions of the hospital will be more than outweigh the premium paid.
Apart from that, the reseach firm noted the funding of the acquistion will not have a great impact on the healthcare services provider’s gearing.
MIDF Research noted IHH Healthcare’s cash position as of third quarter of 2016 (3Q16) which amounted to RM2.1 billion was more than enough to fund the entire acquisition without external borrowings.
It said IHH Healthcare would most likely fund the acquisition via internally generated funds to make way for bigger acquisitions locally or abroad that will require heavy external borrowings.
Assuming the acquisition which could be fully funded by borrowings, MIDF Research estimated that IHH Healthcare’s gearing ratio will remain at 0.21 times as the acquisition was relatively small.
It noted IHH Healthcare intends to fund the acquisition either via borrowings or internally generated fund.
On earnings forecast, MIDF Research said it made no changes to its earnings projection for IHH Healthcare at this juncture.
Nonetheless, it remained wary of the healthcare services provider’s outlook this year as challenges persist despite the resilient demand and growth for healthcare services across all its home markets.
Despite that, MIDF Research said it continued to be long term positive on IHH Healthcare’s fundamentals as the healthcare services provider’s robust balance sheet with a gearing ratio of 0.21 times and cash position of RM2.1 billion will continue to ensure the prospects of the company remains intact.