KUALA LUMPUR (Sept 9): Ramsay Sime Darby Health Care Sdn Bhd, which had been a takeover target of IHH Healthcare Bhd, could be priced better in the future when owners Sime Darby Bhd and Ramsay Health Care continue to build its healthcare business moving forward, said analysts.
In March, IHH expressed its intention to acquire a 100% stake in Ramsay Sime Darby Health Care — a 50:50 joint venture between Sime Darby and Ramsay Health Care — for an initial offer price of RM5.67 billion in enterprise value (EV).
Five months later, IHH told Bursa Malaysia on Friday (Sept 9) that the acquisition fell through as discussions between the trio did not result in a binding agreement.
Nomura Research said the deal being concluded without a binding agreement had been expected after a delay in announcement of updates by relevant parties.
"We think a disagreement could be on pricing upon conducting further due diligence," said Nomura analysts Ahmad Maghfur Usman and Divya Thomas in the company's global markets research note on Friday.
"This is clearly a setback for Sime Darby, as we think it would have been a good opportunity for the company to divest the business at a reasonable valuation considering the lack of a growth strategy for the healthcare business," they said.
May revisit IPO plan
They foresee that Sime Darby would now focus on trying to build its healthcare business, or revisit the initial public offering (IPO) plan for Ramsay Sime Darby Health Care, for which Sime Darby mulled listing in 2021.
Contrary to Nomura's opinion, Kenanga Investment Bank Bhd analyst Wan Mustaqim Wan Ab Aziz told The Edge in an email reply that it believes Sime Darby received no impact from the unaccomplished agreement since it was never confirmed.
Nonetheless, he said greater value could be unlocked for Ramsay Sime Darby Health Care as borders have reopened, which would bring about higher bed occupancies and resumption of elective surgeries' demand from foreigners.
CGS-CIMB Securities Sdn Bhd, meanwhile, said IHH's management could be exercising prudence on its capital allocation given the "premium price tag" of Ramsay Sime Darby Health Care against IHH's valuation.
"IHH's initial offer price of RM5.67 billion in EV represented an EV/Ebitda (earnings before interest, taxes, depreciation, and amortisation) of [about] 25 times based on Ramsay Sime Darby Health Care's reported Ebitda of RM226 million for financial year ended June 30, 2021, which is more than an 80% premium to IHH's current valuation of [about] 14 times forward EV/Ebitda," its analyst Tay Wee Kuang said in a note on Friday.
"We do not foresee any downside risk to IHH's earnings with the deal falling through as we have not included contribution from the potential deal in our earnings forecasts," he added.
Had the deal gone through, Ramsay Sime Darby Health Care's portfolio of seven hospitals — four in Malaysia and three in Indonesia — would have added more than 1,500 hospital beds to IHH, Tay pointed out.
IHH had a bed count of 11,418 across key operating markets, which include Malaysia, Singapore, India, Turkey and Europe as of end-financial year 2021. The Ramsay Sime Darby Health Care deal would have also helped IHH gain entry into Indonesia.
At market close on Friday, Sime Darby's share price closed six sen or 2.62% lower at RM2.23, while IHH's was down five sen or 0.8% to RM6.17.
Nomura maintained a "buy" call for Sime Darby with a target price (TP) of RM2.66. CGS-CIMB has a TP of RM8.07 for IHH while recommending an "add" call for IHH.