IHH Healthcare Berhad $IHH (Q0F.SG)$/$IHH (5225.MY)$ has announced plans to acquire Island Hospital Sdn Bhd (IHSB) in Penang for RM3.92 billion. This acquisition will significantly expand IHH's presence in the northern region of Malaysia, with Island Hospital being a prime asset in the medical tourism sector. The hospital, with a 600-bed capacity, is strategically located to cater to patients from both Malaysia and nearby countries, such as Indonesia, further boosting IHH's regional influence.

Analysts from various research firms have weighed in positively on this development. MIDF Stock Broking House has maintained a BUY call with a target price of RM7.35, citing the hospital's strategic location and potential revenue synergies. Meanwhile, RHB Stock Broking House has also issued a BUY call, with a higher target price of RM8.00, reflecting optimism on the expansion of IHH's operational footprint and the synergies expected from this acquisition. Kenanga Stock Broking House supports this view, maintaining an OUTPERFORM rating with a target price of RM7.73, noting that while short-term earnings might be diluted, the long-term benefits are likely to outweigh any temporary setbacks. Last but not least, CGS International Stock Broking House reiterates an ADD rating for the company, with a target price of RM7.88.

Island Hospital, known for its top-tier facilities and high patient volumes, is seen as a valuable asset. With over 430,000 outpatient visits and 42,000 inpatient admissions annually, the hospital offers specialised services in cardiology, oncology, orthopaedics, gastroenterology, and general surgery. Furthermore, its proximity to Penang International Airport enhances its appeal for medical tourism, which is a key growth area for IHH.

The acquisition also includes a piece of adjacent land, valued at RM223 million, which has been approved for future development. This will allow IHH to increase Island Hospital's capacity, further cementing its role as a leading medical institution in Penang and the region.

Financially, the deal is expected to increase IHH's net gearing from 0.29x to 0.44x, assuming the acquisition is fully financed through borrowings. Despite this, the expected revenue synergies and cost savings from integrating Island Hospital into IHH's network are anticipated to boost IHH's overall performance from 2025 onwards. Revised earnings forecasts indicate a 15% increase in IHH's revenue by FY26, as the newly acquired hospital begins to contribute significantly to the group's financials.

While the acquisition comes with some risks, such as the potential difficulty in integrating Island Hospital into IHH's existing network and economic uncertainties affecting patient demand, analysts believe these can be mitigated by IHH's operational expertise. Consequently, the company's long-term growth prospects remain strong.

Source: MIDF, RHB, Kenanga, CGS
Title: Solidifying the Northern Hospital Cluster, Expanding Its Footprint In The Pearl Of The Orient; BUY, Acquiring Hospital in Penang, Acquisition of Island Hospital the right fit