Analysts positive on IHH’s Amanjaya Specialist Centre acquisition
KUCHING: IHH Healthcare Bhd’s (IHH) acquisition of Amanjaya Specialist Centre Sdn Bhd (Amanjaya Specialist Centre) has been met with positive reactions, as it has been viewed as a necessary move by the group to sustain revenue growth.
In a filing on Bursa Malaysia, IHH’s board of directors announced that indirect wholly- owned subsidiary Pantai Hospitals Sdn Bhd (PHSB) had on October 1, 2018, completed the acquisition of 9.5 million ordinary shares in Amanjaya Specialist Centre, representing a 100 per cent equity interests therein, for a total cash consideration of RM101.66 million, subject to closing adjustment.
“We are positive on the news as the acquisition will complements IHH’s existing hospital – the 110-bed Pantai Hospital Sungai Petani – which is currently operating at near maximum capacity and it enables the group to cater to patient volume growth in Malaysia and hence, sustained revenue growth at high single digit,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research).
Based on the acquisition price, MIDF Research estimated that the cost of acquisition per bed amounted to RM1 million.
The research arm noted that traditionally, the cost of acquisition per bed can vary between RM0.7 million to RM1 million depending on the number of beds, types of specialisation and location.
MIDF Research believed that Amanjaya Specialist Centre’s fair value deserves to be at a higher range bound as the hospital was opened in 2014 and hence, quite new.
In addition, the research arm highlighted that the hospital has a good reputation as one of the best private hospitals in Sungai Petani in terms of location, facilities and level of service and the hospital is green building index-certified which means it requires lower energy utilisation.
“This translates to a reduction in operating cost by 15 per cent to 20 per cent.”
Given that new hospital normally has three to five years gestation period, MIDF Research believed that the acquisition is not expected to contribute significantly to earnings in financial eyar 2018 forecast ( FY18F) and FY19F having been in operation for only four years.
While MIDF Research remained wary external challenges such as depreciating Lira currency will slow earnings growth in the near term, the research arm liked IHH as its aggressive focus on establishing larger network of hospitals in the group’s home market will benefit in a longer term.
“We are expecting further improvements in terms of revenue contributions coming from Glenegales Hong Kong and Acibadem Altunizade as both hospitals continue to ramp up respective operations and receive more complex cases which will offset the incremental depreciation, amortisation and finance costs of these two hospitals.
“Additionally, we opine that its current revenue growth is sustainable given the expected addition of new hospitals such as Gleneagles Chengdu and expansion of Acibadem Maslak currently underway which is expected to be completed by the end of 2018 which will drive revenue growth even further for IHH.
“Furthermore, IHH’s balance sheet remains robust with cash balance of RM6.2 billion which is able to offset its current debt obligation of RM6.9 billion.”