CGS Investment Bank reported today (July 2, 2024) that Sunway Bhd is likely to experience a rerating ahead of the listing of Sunway Healthcare Group (SHG). CGS has reiterated its Add recommendation on Sunway Bhd, raising its earnings per share (EPS) forecasts for FY24–26 and setting a new target price (TP) of RM4.40.
According to CGS, the catalyst driving this rerating is the anticipated IPO of Sunway Healthcare Group (SHG), now expected in FY26F. This timing aligns with the opening of two new hospitals, Sunway Damansara and Sunway Ipoh, which are projected to achieve profitability at the EBITDA level by FY26F. These additions will increase SHG's bed capacity to approximately 1,700, up from 1,158 as of March 2024.
CGS has revised its valuation for SHG to RM13.5 billion for 100% ownership, with Sunway holding an 84% stake valued at RM11.5 billion. The valuation is now based on a 22x FY25F EV/EBITDA multiple, reflecting a 10% premium over comparable transactions in the healthcare sector.
The bank believes this premium is justified given SHG's robust expansion plans, expected to enhance its market share in the private hospital sector and elevate its revenue per bed to RM1.3 million, surpassing industry benchmarks.
Sunway Bhd's recent inclusion in the FBM KLCI and potential future inclusion in the MSCI Malaysia Index further bolster its visibility among foreign investors. CGS notes that foreign shareholding in Sunway rose to 5.3% as of May 2024, up from 4% in December 2023, indicating growing international interest.
Historically, similar corporate actions, like Sunway Construction Group's IPO in 2014, led to a 22% stock price increase in the preceding months. CGS anticipates a similar rerating scenario for Sunway Bhd as SHG's IPO approaches, driven by SHG's reputation for high-quality healthcare services, its expanding hospital network, and strategic acquisitions like the potential purchase of Island Hospital in Penang.
In conclusion, CGS Investment Bank maintains its Add rating on Sunway Bhd, citing strong growth prospects supported by SHG's impending IPO and strategic initiatives in the healthcare sector. Investors are encouraged to consider Sunway Bhd as a potential opportunity for capital appreciation, particularly with the projected rerating leading up to SHG's listing in FY26F.