IHH jumps 14pc as world’s No.3 IPO debuts
KUALA LUMPUR, July 25 – Asia’s largest hospital operator IHH Healthcare Bhd jumped as much as 14 per cent in its trading debut today, as investors eager for exposure to the region’s growing healthcare sector chased the world’s third largest listing this year.
IHH raised US$2.1 billion (RM6.67 billion) in a share sale that confirmed Malaysia’s status as Asia’s current IPO capital following the strong debut last month of plantation giant Felda Global Ventures Holdings, the biggest IPO of 2012 after Facebook.
The stock climbed as high as RM3.19 on the Malaysian stock exchange, 13.9 per cent above its IPO price of RM2.80, within the expectations of analysts who had predicted a bounce despite a backdrop of tottering global equity markets and pulled listings.
IHH also listed in Singapore, adding some shine to the regional bourse after India’s Reliance Communications shelved a planned US$1 billion IPO by its undersea cable unit this month on jittery market conditions.
“IHH’s premium may be less than Felda Global’s but its prospects over a 3-5 year holding period would definitely be better,” said Linda Koh, a Kuala Lumpur-based analyst with research house InsiderAsia.
Malaysian IHH shares ended the day 10.4 per cent higher at RM3.09 per share, while shares in Singapore closed 10.5 per cent richer to S$1.23.
Malaysia, where the government has a heavy hand in the economy and the equity market is dominated by local investors and large domestic pension funds, has defied a gloomy trend that has seen several IPOs pulled due to a lack of investor interest.
And there are more IPOs in the pipeline. Malaysian tycoon Ananda Krishnan is expected to list the local operations of pay-TV firm Astro All Asia Networks Plc in the fourth quarter in a deal that could raise as much as US$1.5 billion, while the world’s largest condom maker, Karex, is considering an IPO.
Singapore, on the other hand, had to contend with motor racing firm Formula One delaying its US$3 billion dollar IPO. Most recently, Ascendas Hospitality Trust had to cut a planned listing in the city state by 13 per cent after being forced to exclude a South Korean hotel chased by creditors.
EXPOSED TO HEALTHCARE
IHH is the healthcare arm of Malaysia’s state investor Khazanah Nasional. Based on its highest Malaysian share price of RM3.19 on Wednesday, IHH has a market capitalisation of RM25.6 billion ringgit, making it the world’s second-biggest listed healthcare provider after US hospital operator HCA Holdings Inc.
It joins the likes of Kuala Lumpur-listed KPJ Healthcare Bhd, Singapore’s Raffles Medical Group, Bangkok Dusit Medical Services and India’s Fortis Healthcare as key medical services stocks.
The stock is set to lead investor exposure into a region where rising incomes and a growing middle class in China, India and Southeast Asia are boosting demand for better medical services.
“Given IHH’s size, I won’t be surprised to see them incorporated as a component of the STI (Straits Times Index), so some funds may be taking positions first,” said Ng Kian Teck, lead analyst at Singapore-based SIAS Research.
“There are not many healthcare plays here, especially of IHH’s size but valuations are not cheap.”
IHH, which counts Japan’s Mitsui & Co and Dubai-based Albraaj Capital as shareholders along with Khazanah, has expanded rapidly in the past few years and now employs 24,000 people in 30 hospitals as well as medical centres and clinics.
It added Turkish hospital group Acibadem AS, Singapore’s Parkway Holdings and India’s Apollo Hospitals Enterprise Ltd to its local holdings Pantai Hospitals and International Medical University.
Analysts’ views are mixed on IHH’s earnings growth outlook, with some saying it could struggle to achieve synergies from its large, complex operations extending from Malaysia and Singapore to Turkey.
In contrast, TA Research said IHH’s strong earnings growth outlook and favourable geographic diversification warrants the IPO price that values it at a 20 per cent premium to its peers.
At RM2.80 a share, IHH trades at a historical price-to-earnings ratio (PER) of nearly 60 times, and 46 times forward PER based on Public Investment Bank’s estimate of earnings per share of 6.1 sen for 2013.
IHH Managing Director Lim Cheok Peng told reporters in the Malaysian capital that the firm was working towards a unified vision for its Turkish and Southeast Asian units and left the door open for dividends.
“We do not have any dividend policy at this point, it depends on the cash flow. If we do not need to spend on capex and expansion and have excess cash, we will return the money back to the shareholders,” he said.
IHH’s IPO consisted of 2.23 billion shares with an over-allotment option of up to 170 million shares, putting the total offering at US$2.1 billion.
The institutional component of the offer was oversubscribed by more than 100 times. Despite strong demand, the IPO was priced slightly below the top of a RM2.67-RM2.85 range to “leave something on the table”, one source involved in the deal said.
Nearly two-thirds of the shares were taken by big “cornerstone” investors including sovereign wealth fund Kuwait Investment Authority and International Finance Corp, the private investment arm of the World Bank.
Bank of America-Merrill Lynch, CIMB and Deutsche Bank are the lead global coordinators for the listing, with Credit Suisse, DBS, Goldman Sachs and Maybank acting as joint bookrunners. – Reuters