RHB Research has maintained “BUY” on Sunway with a target price (TP) of MYR2.06, which translates to 30% upside with 2.5% FY22F yield. RHB Research is upbeat on Sunway Healthcare Group’s (SHG) expansion. The performance of its existing two hospitals, location of the pipeline hospitals, strategies to attract doctors and maintain nurses as well as the advanced medical equipment are the healthcare group’s key competitive strength. Given the growth momentum, Sunway should be able to meet its partner GIC’s target IRR of 12.5%, and list SHG by 31 Jan 2028 (completion date).
Ongoing expansion at Sunway Medical Centre (SMC), Sunway City. Sunway’s healthcare management and IR team organised a site visit at SMC Sunway City yesterday. Overall, the research house is impressed with the advanced medical equipment, laboratories and facilities within the hospital. In addition to the current Towers A, B and C, Towers D, E and F will be added progressively from 2Q23 onwards. Upon the full opening, the number of beds in this hospital will rise to 1,081, from 616 currently.
Demand for medical treatment has increased this year. Management shared that the numbers of patients and treatment cases has increased this year, exceeding levels recorded prior to the pandemic. The higher demand is largely due to the re-opening of the Malaysian economy – as such, many people delaying their treatment over the last two years are returning.
Progress of other hospitals in the pipeline. Three other hospitals are currently under construction, including SMC Penang (Seberang Jaya), SMC Damansara and SMC Ipoh. The hospital at Kota Bahru, Kelantan is currently pending zoning approval, while another two hospitals at Paya Terubong (Penang) and Iskandar (Johor) are currently in the planning stage. SMC Penang is targeted to commence operations in November. It is expected to see encouraging demand for this new hospital, given the lack of well-equipped private hospitals in the vicinity, as well as its location – next to Sunway Hotel Seberang Jaya and Sunway Carnival Mall. Phase 1 of the hospital will have 200 beds (total projected end-capacity: 333 beds).
Two years to break even. Management indicated that SMC Penang will likely take about two years to break even, similar to the trend seen in SMC Velocity in Kuala Lumpur. Post opening in late 2019, SMC Velocity is now expected to be profitable, potentially raking in MYR10-15m in PAT this year. It is encouraging to note that the hospital has reached about 60-70% of its
capacity, and Tower B of the hospital is now under construction.
Expect mild losses from SMC Penang. The potential start-up losses from SMC Penang may offset earnings growth from the healthcare division slightly in 2023. It is expected the opening of Towers D, E and F in SMC Sunway City to have similar losses – since the hospital is already well-established, and there should be spillover demand for medical equipment and facilities from the existing operations.
Salient Points:
Target Price (Return): MYR2.06 (+30%)
Price (Market Cap): MYR1.58 (USD1,662m)
ESG score: 3.40 (out of 4)
Avg Daily Turnover (MYR/USD) 0.84m/0.19m
