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Wednesday, 4 July 2012

IHH Healthcare Berhad

IHH Healthcare Berhad ("Company"or "IHH") will be one of the largest listed private healthcare providers in the world based on market capitalisation upon listing. It is a leading healthcare provider in Singapore, Malaysia and Turkey. It also have operations and investments in PRC, India, Hong Kong, Vietnam, Macedonia and Brunei. Based on the prospectus, it has over 4,900 licensed beds in 30 hospitals and over 3,300 new beds in the pipeline over the next 5 years.

IHH is going for a dual listing on both Singapore and KL stock exchanges but its primary listing will be on the main market of Bursa Securities and is subjected to Malaysian laws and regulations. You may want to take note that shareholders above 5% must report its shareholding within 7 days and as long as it holds above 5%, it must make a declaration whenever it deal in the securities (regardless of whether it is significant or not).

IHH is offering up to 2,234.65m shares of which 1,800m are new shares and 434.65m are vendor shares. There are 4 placement tranches, Institutional, Malaysia public offering, Singapore offering and Cornerstone offering. Singapore will get about 2% of the shares on offer.

27.17% of the company will be up for sale of which the cornerstone investors will take up 16.87%. The cornerstone investors are:

1. AIA Group Limited’s subsidiaries
2. Blackrock Investment Management, LLC
3. Capital Group International, Inc’s wholly-owned subsidiaries:
4. Capital Research Global Investors
5. CIMB-Principal Asset Management Berhad
6. CMY Capital Markets Sdn Bhd
7. Eastspring Investments Berhad
8. Employees Provident Fund Board
9. Fullerton Fund Management Company Ltd
10. The Government of Singapore Investment Corporation Pte Ltd
11. HPL Investers Pte Ltd and Como Holdings Inc.
12. Hwang Investment Management Berhad
13. International Finance Corporation
14. JF Asset Management Limited
15. Keck Seng (Malaysia) Berhad and Keck Seng Investments (Hong Kong)
16. Kencana Capital Sdn Bhd
17. Kuwait Investment Authority
18. Lembaga Tabung Haji
19. Mezzanine Equities N.V.
20. Newton Investment Management Limited
21. Och-Ziff Capital Management Group’s affiliates
22. Permodalan Nasional Berhad

The cornerstone investors must hold the shares for at least 6 months.

The shares are offered at $1.18 per share and 90% of the proceeds raised will be used to pay off bank loans.

For the year ended 31 Dec 2011, the company made a pro-forma profit of USD 41.4m from sales of over USD 1.6 billion. For the 3 months ended 31 March 12, the sales and net profit were USD 463m and USD 67.8m respectively.  Based on the prospectus, the EPS using the enlarged share capital was US 0.96 cents and US 0.64 cents for the year 2011 and 3 months to 2012 respectively. This translate into a historical listing PER of 93x for FY2011. Assuming a pro-rated EPS for FY2012, the EPS in MYR will be 8.16 cens and the PER will be around 35x. The net assets per share is around RM2.04 versus its listing price of RM2.85. The offer will close on July 11 at 5pm Singapore time and the final price determined on July 12. Balloting will be done on July 23 and trading will commence on July 25. I guess because it is not a straightfoward listing, hence the reasons for holding on to the cash for more than 12 days after IPO closes. IHH is expected to have a market cap of RM 23 billion or Singapore 9.5 billion. You may also be interested to know at the Company is still searching for their group CFO, hence you may submit your resume if you qualify for the post...  

It is interesting to note that the book building has yet to commence and the final price will be determined on July 12. If the FELDA IPO is anything to go by, it is probably that they will adopt the same method where they did not price at the upper end of the book building price but leave some 'meat' for retail investors. Probably the Malaysian election is approaching soon? FELDA made a strong debut last week. As of today, the share price of FELDA is 20% higher than its IPO price.

According to a CNA report, the shares will be fully fungible between the Singapore and Malaysian bourses and that IHH will be the number 1 healthcare service provider in 3-5 years, overtaking HCA listed on NYSE. 

Despite seeing merits in this IPO, I have to admit that the valuation at which the IPO is launched is very expensive and on the high side. Its pipeline of beds and penetration of the Turkish markets does somewhat suggest that the company is still growing at a rapid pace. Perhaps this is what attracted 22 cornerstone investors to this deal and the list do indicate that the sophisticated investors like this company and the story behind it. 

Investors here will remember the hostile takeover of Parkway between Khazanah and Fortis  just 2 years ago. In this regard, Khazanah will not be willing to list this at a loss. I found an interesting write up on IHH by another blogger here.

Anyway, my conclusion is this. This stock is expensive but you probably wont lose money if your intention is to buy and sell within the first 6 months. The election is too near for Malaysia government to risk this. hahaha. However, you may want to ask yourself why 22 reputable investors are wiling to be cornerstone investors. Perhaps they do see some value in this company with prospective information which retail investors are not privy to. I will give it a 2 chilli ratings as i like the sector and industry but not its expensive valuation. It is a hit and run for me unless the Company does deliver on its 'potential'. For your information, while i was writing this report, HCA is only priced at 8.4x FY2012 PE and a EV/EBITDA of 6.6x.... It really makes it tough to justify why IHH should be perceived differently, perhaps this is why its prospectus made this comment that IHH will be one of the largest healthcare provider in the world by "market cap".... good luck to all.


Anonymous said...

Hi, great take on this IPO for all its marketing. How's your take on Neo Group's IPO?

Anonymous said...

Can someone apply to both Singapore and Malaysia retail portion at the same time?

2Y Capital said...

multiple applications are accepted. just do it.

Anonymous said...

trying to look into the prospectus whether mutiple appln is allowed for appln in m'sia n spore

Anonymous said...

Please update if anyone sees that anywhere.

Also, where can we obtain previous IPO basis of allocation? Ie: apply for x amount, allocated y amount and successful applicant vs number of applicants in each application group size.

Anonymous said...

Checked the prospectus, no where did it mention that multiple appl is accepted.

2Y Capital said...

The success rates usually depend on the demand and supply one fixed rule. I remembered during Hutchison Port IPO, you want x give u x cos no demand...

Based on my 'experience' of watching the IPO market, usually it is not worth applying 1 lot. The sweet spot should be to apply for > 50 lots or > 100 lots to get the highest chance of allocation.

2Y Capital said...

For BIG MEGA IPOs, dont worry about multiple applications. Reason for restricting one applicant to one IPO for small IPOs is because they need to abide by a listing rule of at least 500 or 1,000 shareholders. That is why for small IPO, many dealers are tasked by their securities houses to apply for 1 lot of IPO at the ATM to ensure that rule is met...

Anonymous said...

At RM2.85... Malaysia side only paying $1.13 spot rate. So nice.

daniel said...

Hopefully someone can reply me.Can i apply through both private placement and the public? Will i get forfeited by SGX? Does the above multiple application cover the mentioned scenario? Thanks!

2Y Capital said...

Hi Daniel, you can apply both public and private placement.

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