BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Tuesday, 24 July 2012

IPO Note

Buy
Target Price Offer Price
Stock Code KLCI Listing Sector Shariah Compliant Issued Shares (m) Market Capitalisation (RMm) Estimated Free Float Majority Shareholders Khazanah Nasional MBK Healthcare

RM3.30 RM2.80
1,636.17 MAIN MARKET Consumer Y 8,057.1 22,589.8 33% 46.80% 20.06%

IPO Note IHH Holdings

An Integrated Healthcare Provider
IHH Holdings provides a full spectrum of healthcare services, from primary healthcare clinics to secondary and tertiary hospitals. It is one of the worlds largest healthcare providers with an estimated market capitalisation of RM22.6bn. At the moment, IHH global healthcare network operates over 4,900 licensed beds encompassing 30 hospitals. In addition, the group have more than 3,300 new beds in the pipeline to be delivered through new hospital developments in Malaysia, Singapore, Turkey and other regional countries. We are positive on the outlook of IHH given its nature of being in a recession proof industry and strong market positioning. We value IHH at RM3.30 based on 30x PER over FY13 EPS of 11sen. With potential upside of more than 17%, we recommend IHH a BUY. An integrated healthcare provider. The business portfolio of IHH include integrated healthcare business, ancillary healthcare business, project consultation and education besides investing and hold equity interest in Plife REIT which is one of the Asias largest healthcare real estate investment and Apollo, one of the Indias largest private healthcare providers. The main component of IHH includes Parkway Pantai Ltd (PPL), Acibadem Holdings and IMU Health (IMU). Strong team of medical specialists. At present, IHH has about 3,260 specialists where about 1,200 are based in Singapore or about 90.0% of the total number of private specialists in Singapore whilst 760 are in Malaysia with the balance of 1,300 in Turkey. Continue to grow. Presently, IHH global healthcare network operates over 4,900 licensed beds in 30 hospitals. In addition, the group have more than 3,300 new beds in the pipeline to be delivered through new hospital developments in Malaysia, Singapore, Turkey and other regional countries. Strong earnings growth ahead. For FY12 and FY13 we expect IHH to register net earnings of RM763.3m and RM883.7m respectively representing growth of 478.1% and 15.8% respectively. Earnings Table
FY 31 Dec (RMm) Revenue EBITDA Pretax profit Tax MI Net Profit Core Net profit Core EPS (sen) Core EPS growth (%) DPS (sen) NTA/ share (RM) Net gearing (x) PER (x) Div. yield (%) P/ NTA (x) 2009 3,946.3 774.6 470.3 (6.8) (36.3) 427.2 (26.3) (0.3) 0.0% n.a. 0.27 0.0 (933.3) n.a. 10.2 2010 4,506.7 888.8 155.1 (76.4) (37.3) 41.5 75.3 0.9 -400.0% n.a. (0.64) 1.9 311.1 n.a. (4.4) 2011 5,190.8 1,029.7 333.4 (87.8) (113.6) 132.0 (45.9) (0.6) -166.7% n.a. 0.59 0.1 (466.7) n.a. 4.7 2012E 6,011.0 1,424.6 1,083.4 (227.5) (92.6) 763.3 763.3 9.5 -1683.3% n.a. 0.69 net cash 29.5 n.a. 4.0 2013E 6,996.1 1,647.2 1,254.1 (263.4) (107.1) 883.7 883.7 11.0 15.8% n.a. 0.81 net cash 25.5 n.a. 3.4

Details of IPO (RMm) Offer for Sale & Public Issue Breakdown Institution Placement 498.01

MITI Tranche Global Institute Tranche Malaysia Public Offering Malaysia Public Bumiputera Non-Bumiputera Eligible Directors Eligible employees Business associates persons who have Singapore Offering contributed to the success Singapore public of the group Singapore placement Eligible Directors Eligible employees Business associates persons who have Cornerstone Offering contributed to the success of the group TOTAL
Tentative Dates Closing for Application Listing Utilisation of Proceeds (RMm) Details of utilisation Repayment of bank norrowings Working Capital and General Corporate Listing Expenses Estimated Purposes Total Thong Pak Leng pakleng.thong@bimbsec.com.my 03-26918887 ext 186

360.00 138.01

208.51 80.57 80.57 4.50 22.59 20.27 140.64 52.00 36.00 3.75 16.60 32.28 1,387.50 2,234.65

12-Jul-2012 25-Jul-2012

RMm 4,662.76 279.64 187.60 5,130.00

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IPO Note: IHH Holdings

INTRODUCTION
Brief Background. IHH was incorporated in Malaysia on 21 May 2010 under the name of Integrated Healthcare Holding SB. It was then converted into a public company on 2 April 2012 and changed the name to IHH Healthcare Berhad involving in healthcare services (HCS), consultation, education and investment in healthcare service sector. It is one of the largest players in Asia via Parkway Pantai Limited (PPL) and IMU Health plus holding a 60% stake in Acibadem, one of the largest healthcare service providers in Turkey. IHH has also interests in Apollo (11.2%) the largest healthcare service provider in India and PLife REIT (35.8%) which is one of the Asias largest healthcare real estate investment trusts. IHH hospitals operate under the brand names of Mount Elizabeth, Pantai, Gleneagles and Acibadem that are well known within the respective countries. IHH Group Structure

*Unless indicated otherwise, all entities are wholly-owned.

Source: Prospectus

Main Components of IHH

Parkway Pantai Limited (PPL) PPL is one of Asias largest private healthcare providers with a network of 16 hospitals with more than 3,000 beds, over 60 medical centres and clinics, and ancillary healthcare businesses. PPL owns and operates Mount Elizabeth, Gleneagles and Parkway East hospitals in Singapore, nine Pantai Hospitals and two Gleneagles Hospitals in Malaysia and has operations in India, the PRC, Hong Kong, Brunei and Vietnam. Acibadem is Turkeys leading integrated private healthcare provider of high quality diagnostic and treatment services. It runs a network of 15 hospitals (14 in Turkey, 1 in Macedonia), 10 outpatient clinics and a number of ancillary healthcare businesses providing clinical lab services, ambulance transport, health sector catering and cleaning and hospital design and planning. IMU owns and operates International Medical University, Malaysias first private healthcare university, offering a total of 17 academic programmes, including medical, dental, pharmacy, nursing, health sciences and complementary medicine programmes. As at 29 February 2012, IMU has 36 international partner universities, which is the largest network of partner universities in the region. IMU has trained about 7,000 students since it was founded in 1992 and had an enrolment of 2,963 students as at 31 December 2011. IMU also owns Pantai College which trains nurses and allied health professionals for PPL hospitals.
Source: Prospectus

Acibadem Holdings

IMU Health (IMU)

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IPO Note: IHH Holdings A leading healthcare provider. IHH had progressively developed their businesses through both organic growth and acquisition with the objective to be one of the largest listed private healthcare providers in the world. In meeting its objective, the Group had streamlined its operations, enhanced its branding, achieved greater synergies and cost savings. Going forward IHH has plans to provide more healthcare centres to serve Central Eastern Europe, Middle East and Africa as well as strengthening its existing presence. Currently, IHH has a strong workforce of more than 24,000 servicing its healthcare network of over 4,900 beds spanning across countries like Singapore, Malaysia, Turkey, China (PRC), Vietnam, Hong Kong, Brunei and Macedonia.

Utilisation of Proceeds
Details of utilisation Repayment of bank borrowings Working Capital and General Corporate Purposes Estimated Listing Expenses Total Estimated timeframe for utilisation upon listing Within 12 months Within 12 months Within 12 months RMm 4,662.76 279.64 187.60 5,130.00 Percentage 90.9% 5.5% 3.7% 100.0%
Source: Prospectus

Allocation of IPO shares

Categories Enlarged Share Capital (million) Percentage of enlarged share capital 4.47% 1.71% 6.18%

Institution Placement MITI Tranche Global Institute Tranche

360.00 138.01 498.01

Malaysia Public Offering Malaysia Public Bumiputera Non-Bumiputera Eligible Directors of the group Eligible employees of the group Business associates and persons who have contributed to the success of the group

80.57 80.57 4.50 22.59 20.27 208.51

1.00% 1.00% 0.06% 0.28% 0.25% 2.59%

Singapore Offering Singapore public Singapore placement Eligible Directors of the group Eligible employees of the group Business associates and persons who have contributed to the success of the group

52.00 36.00 3.75 16.60 32.28 140.64

0.65% 0.45% 0.05% 0.20% 0.40% 1.75% 17.22% 27.74%

Source: Prospectus

Cornerstone Offering TOTAL

1,387.50 2,234.65

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IPO Note: IHH Holdings

INVESTMENT MERITS
Strong market positioning in Asia. IHH have strength in its domestic market particularly Singapore, Malaysia and Turkey riding on brands like Pantai, Gleneagles, Mount Elizabeth and Acibadem. The PPL hospitals of The Mount Elizabeth brand enjoys premium market positioning with the Gleneagles brand enjoys high market positioning in Singapore while the Pantai brand has the strongest reputation among private hospitals in Malaysia. Strong team of medical specialists. At present, IHH has about 3,260 specialists where about 1,200 are based in Singapore or about 90.0% of the total number of private specialists in Singapore whilst 760 are in Malaysia with the balance of 1,300 in Turkey. Still huge potential to grow. Most of the developed and mature economies such as United States and United Kingdom have over 3.0 hospital beds per 1,000 populations. In comparison, countries like Singapore, Thailand, Malaysia, Indonesia and India have a ratio of hospital beds per 1,000 population of below 3.0. A low proportion of beds per 1,000 populations is indicative of latent demand for additional hospital beds reflecting the growth potential for healthcare infrastructure in the country. Doctors Per 1,000 Population Ratio
Doctors per 1,000 Population ratio
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 4.3 3.3 2.7 2.6 2.4 2.3 2.1 3.6 2.9 2.4 2.4 2.2

1.7

1.8 1.8 1.4 1.2 0.7 0.3 0.3 0.7

1.7

2.0

Source: Prospectus

Good destination for medical travel. We believe IHH will benefit from the strong growth from medical travel as their hospitals are strategically located within the medical tourism destinations i.e. Malaysia, Singapore and Turkey. In 2011, medical tourism in Malaysia generated approximately RM509.8m in revenues from approximately RM253.8m in 2007, registering a CAGR of 19.0% during the same period. Singapore is recognised for its HCS and medical expertise and is one of the most favoured medical travel destinations in Southeast Asia. Singapore medical travel revenues and the number of medical travellers are expected to grow at CAGRs of 14.7% and 13.1 % respectively between 2011 and 2016. Meanwhile Turkey has emerged as one of the most popular medical travel destinations in the CEEMENA region due to its high quality medical facilities, high concentration of specialists and capabilities in complex surgical procedures. Medical Travel Size in Malaysia, Singapore and Turkey
Mumber of Medical Travellers ('000) 1,200
1,000

800 600
400

200 0 Malaysia Singapore Turkey

2008 2009 2010 2011E 2012F 2013F 2014F 2015F 2016F

374 370
74

336 342
92

393 399
110

578 461
125

660 533
143

753 604
166

859 681
193

980 761
227

1,120 851
267

Source: Prospectus

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IPO Note: IHH Holdings Growing of ageing population. Life expectancy has improved over the decades due to better living conditions from increased wealth, access to better nutrition, healthcare and sanitation, as well as the political stability in countries. The growing of ageing population will lead to increase in the demand for healthcare services due to higher occurrence of non-communicable lifestyle diseases such as cardiovascular diseases as well as cancer and age related diseases such as arthritis and diabetes, among others; higher requirement for diagnosis and hospital-based inpatient and outpatient treatment; and longer duration of care.

Population 65 years and above (in million) Country 2006 % of total population South East Asia Indonesia Thailand Vietnam Malaysia Singapore Brunei Asia PRC India Kong 11.66 5.16 4.96 1.15 0.36 0.13 100.98 50.94 0.84 5.2% 8.2% 5.9% 4.3% 8.1% 3.3% 7.7% 4.7% 12.3%

2010

% of total population 5.6% 8.9% 6.0% 5.1% 9.0% 3.6% 8.9% 4.9% 12.7%

CAGR 20062010 3.2% 2.4% 1.7% 5.7% 6.4% 3.2% 4.2% 3.2% 1.7%

13.20 5.68 5.30 1.44 0.46 0.14 119.24 57.74 0.90

Central & Eastern Europe, the Balkans, Turkey, the Middle East and North Africa (CEEMA) Russia 19.48 13.7% 18.29 12.8% -1.6% Ukraine 7.55 16.2% 7.08 15.5% -1.6% Turkey 4.63 6.7% 5.06 6.9% 2.3% Egypt 3.40 4.8% 3.91 5.0% 3.6% Romania 3.21 14.9% 3.20 14.9% -0.1% Saudi Arabia 0.72 3.0% 0.82 3.0% 3.3% Macedonia 0.23 11.2% 0.24 11.8% 1.5% UAE 0.03 0.7% 0.02 0.4% -7.2% Developed Countries USA Japan Germany United Kingdom Korea 37.11 26.04 16.00 9.72 4.67 12.4% 20.4% 19.5% 16.1% 9.7% 40.48 28.95 16.63 10.32 5.45 13.1% 22.7% 20.4% 16.6% 11.1% 2.2% 2.7% 1.0% 1.5% 3.9%
Source: Prospectus

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IPO Note: IHH Holdings Aggressive expansion plan. As detailed by the table below, IHH has mapped out its expansion plans over the next 5 years potentially adding around 3,300 new beds from its current total of 4,900. Hospitals Expansion
COUNTRIES HOSPITALS Malaysia Gleneagles Medical Centre Penang Pantai Hospital KL Pantai Hospital Klang Gleneagles KL Gleneagles KK (new) DESCRIPTION New building which is expected to be completed by the end of 2012 and which will add 188 beds to its existing capacity. A new 12-storey building with 120 additional beds by the end of 2014. Increasing capacity by 80 beds and is expected to be completed by mid-2014. Additional 100 beds by by mid-2015. Scheduled to open in early 2015, will mark PPL's entry into East Malaysia. The hospital will have 250 beds, providing tertiary hospital services to the community in Kota Kinabalu, Sabah. Situated an hour's drive from Ipoh city, will provide healthcare services to the community in the upcoming Manjung township by early 2014. The hospital is expected to have 100 beds. Situated in Medini, Iskandar Malaysia, and will target the Malaysian market as well as medical travellers from Singapore. The first phase of 150 beds is expected to be operational in early 2015 and it is expected that it will subsequently be expanded to its intended size of 300 beds. Capacity to operate up to 333 beds and 13 operating theatres. Scheduled to open in two phases, the first phase with 180 beds by July 2012, and the remainder 153 beds in the 2H2013. Located at Kolkata, is a 425-licensed bed multispecialty tertiary hospital, which is currently in the process of increasing its licensed beds to 510. ADDITION 188

120 80 100 250

Pantai Hospital Manjung (new)

100

Gleneagles Medini (new)

300

Singapore

Mount Elizabeth Novena Hospital (new)

153

India

Apollo Gleneagles Hospital

85

Gleneagles Khubchandani Located in Mumbai, is currently under development and will have 450 beds and expecting to be Hospital (new) operational end 2012. GM Modi Hospital (new) Located in New Delhi, India, is planned to be developed into a 300 beds hospital facility. Vietnam PRC and Hong Kong City International Hospital Located in Ho Chi Minh City, Vietnam, having 313 beds and expected to be operational in 2013. (new) Shanghai International Medical Center (SIMC) (new) Acibadem Sistina Skopje Clinical Hospital Located within the Shanghai International Medical Zone, an area in Shanghai designed to be a medical hub. SIMC is a tertiary hospital and is expected to operate up to 450 beds in 2014.

450

300 313 450

Turkey

Located in Skopje, Macedonia, presently having 179 licensed beds. Will add 81 beds to its existing capacity and is expected to open its oncology department in 2012. Acibadem Maslak Hospital Located in Masalak, Istanbul presently having 183 licensed beds. Additional 120 beds to its existing capacity and is expected to be operational in 2015. Acibadem Ankara Hospital Located at Ankara, will have 78 beds and scheduled to be operational in 3Q2012. (new) Acibadem Bodrum Hospital (new) Located at Bodrum, will have 110 beds and has commenced operations in June 2012.

81

120

78 110

TOTAL

3,278
Source: Prospectus

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IPO Note: IHH Holdings

RISK FACTORS
Key Risks Factors
Political risks IHHs businesses are heavily concentrated in Singapore, Malaysia and Turkey. Hence, the operations are exposed to political risks which may have adverse effect on the companys business. IHH is exposed to foreign exchange risk as sales and purchases, cash and cash equivalent and etc which done in currency other than the respective functional currencies of IHH group entities. Fluctuations in currencies will have negative impact on its results of operations and financial condition. The performance and execution of IHHs growth is depend on the doctors and other supporting staff such nurses, admin and other healthcare practitioners. A shortage of medical personnel in certain areas or locations may cause IHHs operation to a halt or delay. The M&As prior to listing, resulted to goodwill and other intangible assets amounting to RM11,585.8m as at 31 March 2012 representing approximately 49.8% of IHHs total assets and 93.6% of consolidated total equity. In accordance with applicable accounting standards, IHH will periodically evaluate the goodwill and other intangible assets to determine whether all or a portion of their carrying values may no longer be recoverable, hence there is a risk of impairment which will charge to the income statement.
Source: Prospectus

Exchange rate fluctuations

Highly dependent on doctors, nurses and other healthcare professionals. The value of our intangible assets and costs of investment may become impaired.

FINANCIALS AND VALUATION

Promising future. IHH experienced strong revenue growth in the past few years contributed by strong performance in Hospitals and Healthcare services as well as consolidation of Parkway and Pantai Irama and the acquisition of Acibadem Holdings. We believe the aggressive expansion plan to increase its hospital beds by more than 60% over the next 3 to 5 years should sustain groups earnings growth. FY11 Revenue Breakdown
Healthcare 21.7%
Education 3.3%

Hospital 74.6%

Non-healthcare 0.4%

Source: Prospectus

Strong earnings growth ahead. For FY12 and FY13 we expect IHH to register net earnings of RM763.3m and RM883.7m respectively representing growth of 478.1% and 15.8% respectively. The commendable growth is mainly due to strong revenue growth in PPL Malaysia, PPL Singapore and Acibadem. Moreover, most of the proceeds from IPO will be used to repay borrowing which will result in lower finance cost by about 80% based on our estimates. Premium Valuation over its peers. We value IHH at RM3.30 based on FY13 EPS of 11sen over target PER of 30x, a slight premium over its regional peers. We view that the premium is justifiable given its strong earnings growth going forward and sheer size as one of the worlds largest healthcare company. At RM3.30, the stock offers 17.8% potential upside over its listing price of RM2.80. We recommend a BUY on IHH.

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IPO Note: IHH Holdings

Regional Peers Average PER Band

Companies KPJ Healthcare Bhd Raffles Medical Group Ltd Fortis Healthcare Ltd Apollo Hospitals Enterprise Ltd Bangkok Chain Hospital PCL Bangkok Dusit Medical Services PCL Ramkhamhaeng Hospital PCL Total 3-year average PER Band 21.0 22.7 81.6 36.0 15.4 23.5 13.0 Market Cap (RMm) 3,880.0 3,535.3 2,283.9 4,845.0 1,798.7 15,400.9 1,339.3 33,083.1 Weight 11.7% 10.7% 6.9% 14.6% 5.4% 46.6% 4.0% 100% Adjusted PER 2.5 2.4 5.6 5.3 0.8 10.9 0.5 28.1

Source: BIMB Securities/ Bloomberg

Income Statement
FY 31 Dec (RMm) Revenue EBITDA Pretax profit Tax MI Core Net profit EPS (sen) EPS growth (%) DPS (sen) NTA/ share (RM) Net gearing (x) PER (x) Div. yield (%) P/ NTA (x) ROE (%) ROA (%) 2009 3,946.3 774.6 470.3 (6.8) (36.3) 427.2 5.3 0.0% n.a. 0.27 0.0 52.8 n.a. 10.2 18.5% 17.0% 2010 4,506.7 888.8 155.1 (76.4) (37.3) 41.5 0.5 -90.6% n.a. (0.64) 1.9 560.0 n.a. (4.4) 1.6% 0.5% 2011 5,190.8 1,029.7 333.4 (87.8) (113.6) 132.0 1.6 220.0% n.a. 0.59 0.1 175.0 n.a. 4.7 1.4% 0.7% 2012E 2013E 6,011.0 6,996.1 1,424.6 1,647.2 1,083.4 1,254.1 (227.5) (263.4) (92.6) (107.1) 763.3 883.7 9.5 11.0 493.8% 15.8% n.a. n.a. 0.69 0.81 net cash net cash 29.5 25.5 n.a. n.a. 4.0 3.4 4.6% 5.0% 3.3% 3.6% Source: BIMB Securities

Balance Sheet
FY 31 Dec (RMm) Non Current Assets Current Assets Total Assets Current Liabilities Non Current Liabilities Shareholders' Fund Minority Interests Equity & Liabilities 2009 2,461.3 49.2 2,510.5 72.1 115.9 2,313.3 9.2 2,510.5 2010 13,116.5 2,727.1 15,843.6 5,592.2 7,055.4 2,936.4 259.5 15,843.6 2011 19,127.9 3,892.5 23,020.3 2,428.9 3,694.9 16,304.6 592.1 23,020.3 2012E 19,020.5 5,924.4 24,944.8 2,732.9 3,694.9 17,067.9 286.9 23,782.5 2013E 19,452.5 6,850.6 26,303.1 3,114.9 3,694.9 17,951.5 379.5 25,140.8 Source: BIMB Securities

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DEFINITION OF RATINGS BIMB Securities uses the following rating system:

IPO Note: IHH Holdings

STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months. TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain. NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15% in the next 3 months. SELL Share price may fall by more than 10% over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

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