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Sunway's healthcare segment increasingly draw investor focus, says HLIB Research

KUALA LUMPUR: Sunway Bhd's stock will be re-rated in due time as the healthcare segment will increasingly draw investor focus as the earnings from this segment materialise, Hong Leong Investment Bank Bhd (HLIB Research) said.

Besides that, the bank-backed research said Sunway is also progressing closer to the value-unlocking exercise of its healthcare through an initial public offering (IPO), which is expected to be completed by January 31, 2028.

HLIB Research said that, as compared to its peers, Sunway's healthcare segment is currently undervalued.

"We see vast growth potential for hospitals as the demand is increasing due to urbanisation and better health awareness post-pandemic, while the supply remains well under the recommendation of the World Health Organization (WHO)


"With the strategic partnership with Singapore's GIC Pte Ltd, Sunway is expediting its growth plan with a healthy pipeline of expansion and new hospitals," it said in a note today.

HLIB Research said that compared to Sunway's closest domestic peer, KPJ Healthcare Bhd, the disposal value to GIC values Sunway Healthcare at RM3.94 billion, which is quite similar to the latter's current market cap of RM3.5 billion. 

"Granted, KPJ is larger in capacity with 3,376 beds over 28 hospitals versus Sunway's 737 beds over two hospitals. 

"However, from the profitability metric, we note that Sunway's healthcare is doing better as its bottom line has already surpassed KPJ, with the segment recording share of net profit (84 per cent stake) of RM63.5 million in the first half (1H) of 2022, versus RM49.3 million net profit for KPJ in the same period.

"Sunway's earnings per bed is significantly higher versus 5.9x of KPJ based on 1H 2022 numbers and the impending strong pipeline and expansion for the next three years and beyond. 

"Given such, we reckon that Sunway's value should be at least equivalent to that of KPJ, and under such an assumption, this already forms 47.4 per cent of Sunway's current market capitalisation," it said.

HLIB Research has maintained its 'Buy' call on Sunway, with an unchanged target price of RM2.65.

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