By Natasha Khan
Jul 24, 2012 12:01 PM ET
IHH May Buy More Hospitals After Initial Offer: Southeast Asia
IHH Healthcare Bhd. (IHH), which will become the world’s second-biggest health-care provider by market value when it lists today, may buy more hospitals in markets that have unmet demand, Managing Director Lim Cheok Peng said.
The company raised 6.3 billion ringgit ($1.98 billion) selling shares in the Kuala Lumpur and Singapore initial public offering, the world’s third-largest this year. Lim said IHH may consider smaller acquisitions to add to its January purchase of a 60 percent stake in the owner of Turkey’s largest hospital group, Acibadem Saglik Hizmetleri & Ticaret AS, which it bought for $826 million in cash and stock.
The IHH Healthcare Bhd. Mount Elizabeth Novena Hospital stands in Singapore. Photographer: Munshi Ahmed/Bloomberg
Lim Cheok Peng, managing director of IHH Healthcare Bhd. Photographer: Munshi Ahmed/Bloomberg
Lim Cheok Peng, managing director of IHH Healthcare Bhd., said 'Singapore is almost like a hinterland to Indonesia.' Photographer: Munshi Ahmed/Bloomberg
Siti Hosier, assistant director of nursing at IHH Healthcare Bhd.'s Mount Elizabeth Novena Hospital, adjusts the bedding in the Chairman suite at the hospital in Singapore. Photographer: Munshi Ahmed/Bloomberg
“I don’t think we are prepared to do another major acquisition like Acibadem, but if opportunities arise that fit the overall game plan, we could certainly look at it,” Lim said in a telephone interview.
Kuala Lumpur-based IHH, whose IPO was 132 times subscribed by institutions, already plans to add 67 percent more hospital beds by 2017 to capitalize on populations that are becoming richer and demanding better care. Increasing medical tourism and private health insurance coverage will drive steady demand for beds and services, said B. Kemp Dolliver, head of Asia health- care research at Religare Capital Markets Plc.
“It’s going to be a stable business in an unstable world,” Dolliver, who is based in Singapore, said in a telephone interview. “There’s rising affluence in Asia and aging populations, so the demand dynamics look very promising.”
The market for health care in the Asia-Pacific will post a compound annual growth rate of 8 percent in the years to 2015, according to Frost & Sullivan, which IHH commissioned to do the market analysis in its IPO prospectus. Consumer spending on health goods and medical services in Singapore, Malaysia and Turkey, where IHH operates, will each grow by at least 6 percent annually between 2011 and 2016, according to Euromonitor International, a London-based researcher.
Countries such as Indonesia have medical infrastructure that has yet to catch up with rising wealth of the population, Dolliver said. Indonesia’s growing middle class with higher disposable income and health awareness will drive demand for private medical care such as what IHH offers, Rhenu Bhuller, Frost & Sullivan’s Asia-Pacific vice-president for health care, said by telephone from Singapore.
“Singapore is almost like a hinterland to Indonesia,” IHH’s Lim said. The country, along with Vietnam, Malaysia, Myanmar and Bangladesh, are within a three-to-four-hour flying radius of Singapore and among the primary sources of patients for IHH, he said.
The company’s stake in Turkey’s Acibadem will help IHH target markets in Central and Eastern Europe, the Middle East and Africa, Lim said. Acibadem, which targets the mid- to high- end segments of the health-care market, is a “strong fit” for IHH, according to the IPO prospectus.
“Strategically located between Europe, Asia and the Middle East, Turkey has emerged as one of the most popular destinations for medical travel,” analysts at ECM Libra Financial Group Bhd. said in a July 6 report. “IHH offers investors exposure to a network of healthcare-jewels,” they wrote, rating the stock hold.
IHH said its Acibadem operations would have contributed 37.5 percent of its sales last year if they had been integrated, according to the prospectus. Singapore would have contributed 36.9 percent and Malaysia 21.5 percent, the company said.
The number of millionaires in the Asia-Pacific region exceeded those in North America for the first time last year, according to a report in June from Capgemini SA and Royal Bank of Canada’s wealth management unit. Singapore had the highest proportion of millionaire households, while Hong Kong led the rankings for the percentage of billionaires, according to Boston Consulting Group in June.
Crabtree & Evelyn
IHH’s newest facility in Singapore, Mount Elizabeth Novena Hospital, offers only private rooms and is within a 10-minute taxi ride from the Orchard Road shopping belt. Prices range from S$578 ($459) for a standard room to as much as S$12,888 for the Chairman suite, where patients can request visitors undergo a security check.
To counter the antiseptic smell commonly found in hospitals, the facility uses a blend of oils in its air conditioners. In-room amenities include a 46-inch television set and toiletries by Crabtree & Evelyn Ltd., and patients in some rooms have access to Acer Inc. tablet computers.
The biggest risk for IHH is patients turning away during an economic downturn and job losses, Bhuller said.
“They may decide to give up that perception of luxury,” Bhuller said. “An economic downturn can drive a portion of patients from private to public health care.”
As part of an industry “heavily dependent on human talent,” IHH also faces the risk of an increase in staff cost, Low Yee Huap, an analyst at Hong Leong Investment Bank Bhd., wrote in a July 19 report. Low rates the stock buy and has a 12- month price estimate of 3.49 ringgit.
IHH, controlled by Malaysian state investment company Khazanah Nasional Bhd., sold shares at 2.80 ringgit each in the IPO, it said in a July 12 statement. The $1.98 billion offering trails the initial share sales of Facebook Inc. (FB), which raised $16 billion, and Felda Global Ventures Holdings Bhd. (FGV), which raised $3.3 billion, among IPOs this year, according to data compiled by Bloomberg.
“It should be more resilient compared with other stocks because being in health care is to a certain extent more resilient,” said Jason Chong, Kuala Lumpur-based chief investment officer at Manulife Asset Management (Malaysia) Sdn Bhd. “If you are sick you have to see the doctors.”
At 2.80 ringgit per share, IHH is priced at 38.9 times the earnings estimates for 2012 of Hong Leong’s Low. This would make the company the most expensive health-care facilities stock among 23 peers that have a market value of more than $1 billion based on 2012 estimates, according to data compiled by Bloomberg.
Nashville, Tennessee-based HCA Holdings Inc. (HCA), the world’s biggest hospital operator, trades at 7.54 times projected 2012 earnings, the data show. The 23 companies have a median price- to-earnings ratio of 14.85 times.
Even with a steep multiple, IHH stock is rated buy by two of the three brokerages to initiate coverage before the IPO.
At the IPO price, IHH will have market value of more than $7 billion, trailing only HCA and ahead of Bangkok Dusit Medical Services Pcl, according to data compiled by Bloomberg.
In 2010, IHH Healthcare, then known as Integrated Healthcare Sdn., paid S$3.5 billion ($2.8 billion) for the 76.1 percent of Singapore’s Parkway Holdings Ltd. it didn’t already own, beating India’s Fortis Healthcare Ltd. It agreed to buy control of Turkey’s Acibadem the following year.
Further acquisitions must be in markets where IHH can continue to grow, and be accretive to earnings, Lim said. The company would buy hospitals with a “good set of doctors that are able to practise in those hospitals,” and local patients, he said. “If there isn’t a good population base, there’s no point in putting a hospital there.”
In the short term, IHH has enough cash flow, Lim said, while he pointed to its 35.8 percent holding in the Parkway Life Real Estate Investment Trust (PREIT) as another possible source of funding. The stake has a market value of more than S$400 million.
“Anyone who cares about health care in the region is going to pay attention to this company,” Religare’s Dolliver said. “There’s limited amount of market cap to invest in in the region, and when you adjust for the actual float, the scarcity value is even higher.”
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