Sunway’s potential healthcare stake sale positive, HLIB Research says

by BERNAMA / pic credit: Sunway Medical Centre

SUNWAY Bhd’s potential divestment of its healthcare portfolio is seen as positive as the exercise will provide a benchmark valuation of the healthcare unit, said Hong Leong Investment Bank Bhd (HLIB Research).

The value of Sunway’s healthcare business has yet to be fully appreciated by the market, HLIB Research added.

Citing sources, Bloomberg reported last week that Sunway is looking to sell off 20% to 25% of its healthcare unit in a deal that could fetch at least US$250 million (RM1.04 billion) with the proceeds to be used for hospital expansion.

Last Friday, Sunway confirmed in an exchange filing that it has appointed Maybank Investment Bank Bhd to “explore strategic investment options” for its healthcare portfolio.

The group continues to explore and evaluate various options for all its businesses, it added. “Based on this news, the healthcare unit is implied to be valued at RM5.2 billion. By imputing RM5.2 billion for the healthcare segment into our sum-of-the-parts (SOP), our target price (TP) would amount to RM2.59,” HLIB Research said.

The figure implies a much higher valuation for the segment vis-a-vis that was imputed in HLIB Research’s SOP, it noted.

The RM5.2 billion would also imply a forward price-earnings ratio of circa 75 times in comparison to peer IHH Healthcare Bhd at an estimated 61 times.

“This implied premium has likely taken into account the upcoming income streams from the expansions over the next three to four years. To recap, Sunway is targeting to have around 2,000 beds by 2024 from 741 as of the financial year ended Dec 31, 2019 (FY19),” the research house added.

It is keeping a ‘Buy’ call on the conglomerate, with an unchanged TP of RM1.95. Shares of Sunway closed 0.7% or one sen lower at RM1.39 last Friday, giving the group a market capitalisation of RM6.81 billion.

Aside from healthcare, Sunway is involved in property development, property investment, construction, leisure and hospitality, education, trading and manufacturing, and building materials.

The group is HLIB Research’s top pick in the property sector, given its well-integrated property and construction developments.

The value of its healthcare business (with new hospitals and the Sunway Medical Centre expansion coming on stream over the next three years) has yet to be appreciated as it is embedded within the parent company.

“This, coupled with the resilient earnings from matured investment properties alongside its growing building materials business and quarry operations, justifies the re-rating of the stock,” the research firm said.