Healthcare IPO target remains firmly on track

Segment seen to drive Sunway earnings growth

“We believe the targeted listing date of 2028 is intact and a tentative valuation of Rm7.3bil to Rm8.6bil is highly possible.” Kenanga Research

KUALA LUMPUR: Sunway Bhd’s plan to list its healthcare division is on track to be realised by 2028, driven by its expansion plans.

Analysts said this division is poised to propel growth for the entire group moving forward in the medium term.

Kenanga Research anticipates Sunway’s healthcare segment will register all-time high profits this year, while 2023 and 2024 will see a slight negative earnings growth due to the gestational losses expected from three new hospitals.

It expects profits to grow again in 2025 as the new hospitals are expected to break even faster as established doctors with existing patients will be coming onboard.

“We believe the targeted listing date of 2028 is intact and a tentative valuation of Rm7.3bil to Rm8.6bil is highly possible.

“Recap that the target listing date and potential valuations were established last year when Sunway sold 16% of Sunway Healthcare to GIC Pte Ltd, Singapore’s sovereign wealth fund,” said Kenanga Research.

According to TA Research, Sunway’s healthcare division has embarked on an expansion of Sunway Medical Centre (SMC) in Sunway and SMC Velocity.

The group plans to build six hospitals in the Klang Valley, Penang, Ipoh, Kelantan and Johor, which could potentially increase the group’s total beds from 856 currently to more than 3,000 beds in the next few years, it said.

“Notably, the construction of SMC Seberang Jaya has already been completed and is targeted for opening in phases by Nov 22. Management anticipates this new hospital will have a gestation period of two to three years before turning profitable,” TA Research added.

The research house said Sunway’s healthcare hub and spoke growth model has the primary advantage of creating cross-referrals and optimising the utilisation of its healthcare facilities.

“The hub and spoke model’s foundation can drive the emergence of new businesses, products, and services from hospitals and non-hospitals, such as home care services or traditional Chinese medicine centres,” it said.

TA Research said this could help capture the larger and under-served population in all regions of Malaysia.

RHB Research, meanwhile, said Sunway’s management confirmed in-patient numbers and treatment cases have increased this year, exceeding levels recorded prior to the pandemic.

“The higher demand is largely due to the reopening of the Malaysian economy, and as such, many people who had delayed their treatment over the last two years are returning,” RHB Research said.

The research house is upbeat on the healthcare expansion plans undertaken by Sunway, rating the stock a “buy” with a RM2.06 target price and a 2.5% yield for 2022.

“The performance of its existing two hospitals, the location of the pipeline hospitals, and strategies to attract doctors, retain nurses, and maintain advanced medical equipment are the healthcare group’s key competitive strength, in our view,” it said.

RHB Research believes Sunway should be able to meet its partner GIC’S target internal rate of return of 12.5% and conduct a public listing of Sunway Healthcare by 2028.