KUALA LUMPUR: RHB research is recommending that investors buy into Sunway Bhd as a cheaper entry into the listing of Sunway Healthcare Group (SHG), which may happen sooner rather than later.
Under the shareholders' agreement with Singapore's sovereign wealth fund GIC Pte Ltd, the IPO for SHG has to be completed by Oct 2027.
"The strong performance of all the hospitals may help to accelerate the timing of the listing, with SHG's estimated worth at RM9 billion. Similar to the listing of Sunway Construction eight years ago, investors are expected to be rewarded via this value-unlocking exercise. the firm said in its note today.
It has raised the target price for Sunway to RM3.00 from RM2.65.
Benchmarking against the valuation of the disposal of Ramsay Sime Darby Healthcare in November last year, RHB research said SHG's enterprise value (EV) may potentially be worth RM9 billion based on the same 20.1 times EV/earnings before interest tax depreciation and amortisation (ebitda) multiple and its financial year 2024 ebitda forecast (FY24F) of RM450 million.
Upon the potential listing in FY25F-26F, SHG may have a market capitalisation of RM10-12 billion.
Sunway, which currently has a market capitalisation of about RM12 billion has an 84 per cent stake in SHG.
RHB research revised the ebitda for SHG upward by 90 per cent, on the performance of newer hospitals, especially Sunway Medical Centre (SMC) Seberang Jaya, which was better than expected.
The hospital, which opened in November 2022, has been ebitda positive since the second quarter of 2023.
"We expect the hospital to start turning profitable at the profit before tax (PBT) level in the second half of 2024. Given the expansion pipeline, SHG is likely to have 2,500 beds by 2027 from the current 1,100 beds," RHB research said.
The firm said stripping off the valuations of all the listed entities as well as the estimated value for SHG, Sunway's other divisions are only worth RM1.8 billion.
"This is significantly undervalued, as the investment properties not currently owned by the real estate investment trust (REIT) already have a total book value of RM2.6 billion," it said.
"Sunway owns strategic landbank at Velocity, South Quay, as well as 1,770 acres in Iskandar Malaysia just off the Tuas link, which, in our view is a jewel given all the catalytic developments and the upcoming establishment of Johor-Singapore special economic zone," RHB research added in its note.