KUALA LUMPUR – Sunway Bhd’s healthcare division is expected to chip in 5% to 11% to the group’s net profit in the financial years ending December 31, 2021 to 2023 (FY21-FY23), according to CGS-CIMB Securities Sdn Bhd.
The forecast is an improvement over the 3% contribution made by the division to the group pre-tax profit as at end-FY20, which was down from 7% in FY19 due to Covid-19 and operating losses at Sunway Medical Centre Velocity (SMCV), it said in a note today.
The stockbroking firm added that SMCV, which has been operational since the fourth quarter of 2019, should be profitable by the end of this year.
Yesterday, Sunway Bhd announced a divestment of a strategic 16% in its healthcare unit to Singapore sovereign wealth fund GIC (Ventures) Pte Ltd affiliate Greenwood Capital Pte Ltd for a total consideration of RM750 million.
“This news is not a major surprise as the group stated in the fourth quarter of 2020 of its intention to seek a strategic partner/investor and has been in talks with potential suitors since.
“Although the purchase price is lower than the RM1 billion (20%-25% stake) reported by the press, the implied 31.3 times EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortisation multiple) is at a premium over IHH Healthcare’s 13.9 times and KPJ Healthcare’s 19.1 times, validating GIC’s appreciation of Sunway Healthcare Holdings Sdn Bhd’s (SHH) growth potential,” CGS-CIMB said.
It said the total net cash proceeds of RM750 million (over five tranches) are equivalent to 25%-38% of SHH’s RM2 billion to RM3 billion capex over the next six years.
As a likely exit strategy for Greenwood, the deal comes with an initial public offering targeted by January 31, 2028.
“What is positive for Sunway is the entry of GIC as a strategic investor (given its existing portfolio of healthcare assets in Southeast Asia), which complements SHH’s growth plans.
“Over the next six to seven years, the group plans to establish six new hospitals and this will add to its existing hospital operations consisting of Sunway Medical Centre in Bandar Sunway (operational since 1999) and SMCV in Kuala Lumpur,” the brokerage said.
CGS-CIMB maintained a “hold” call on Sunway Bhd but raised its target price by 12 sen to RM1.91.
It kept its FY21-FY23 earnings per share forecasts pending the deal’s completion but incorporated into its revised revalued net asset value certain factors, including the surplus net proceeds from the 16% stake sale as well as dilution from the irredeemable convertible preference shares, which Greenwood can convert into 7.76% equity interest in SHH.
At lunch break, Sunway Bhd shares fell 2.81% to RM1.73 with 8.75 million shares transacted. – Bernama, June 24, 2021
