Shares in Asia’s largest hospital operator IHH Healthcare Bhd are expected to jump at their debut on Wednesday in the world’s third-biggest listing this year, as investors snap up a rare stake in Asia’s burgeoning healthcare market.
Four analysts surveyed by Reuters forecast IHH shares would gain between 7 and 14 percent from an initial public offering (IPO) price of 2.80 ringgit, despite a backdrop of tottering global equity markets and cancelled listings.
IHH raised $2.1 billion in a share sale that should reinforce Malaysia’s status as Asia’s IPO capital this year following the strong debut last month of plantation giant Felda Global Ventures Holdings, the world’s biggest IPO of 2012 after Facebook.
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.
IHH, the healthcare arm of Malaysia’s state investor Khazanah Nasional, i s one of the few available plays on the healthcare sector in the region, where rising incomes and a growing middle class are boosting demand for better services.
“It could command such a premium because of the scarcity of healthcare stocks and the resilient nature of the industry,” said Linda Koh, a Kuala Lumpur-based analyst with research house InsiderAsia, who expected the stock to debut at between 3.00 and 3.20 ringgit.
“However, I doubt investors will go much beyond this given prevailing outlook for the global economy.”
With its dual listing in Singapore, IHH joins Kuala Lumpur-listed KPJ Healthcare Bhd, Singapore’s Raffles Medical Group, Bangkok Dusit Medical Services and India’s Fortis Healthcare among major listed Asian health-service providers. IHH’s IPO consists of 2.23 billion shares with an over-allotment option of up to 170 million shares, putting the total offering at $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 2.67-2.85 ringgit 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.
At 2.80 ringgit a share, IHH would have a market capitalisation of 22.5 billion ringgit ($7.2 billion), making it the world’s second-biggest listed healthcare provider after US hospital operator HCA Holdings Inc.
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.
NOT SO CHEAP
IHH, which counts Japan’s Mitsui & Co and Dubai-based Albraaj Capital as shareholders along with Khazanah, has expanded rapidly over 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.
“It is one of the most expensive healthcare stocks in the world,” said an analyst with Malaysia’s Public Investment Bank.
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 percent premium to its peers.
At 2.80 ringgit 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.