RHB Investment Bank (RHB IB) believes investors should start accumulating Sunway Bhd’s shares, not only because of its Johor thematic play, but also in view of the upcoming listing of Sunway Healthcare Group (SHG).
“The strong performance of all the hospitals may help to accelerate the timing of the listing – SHG’s estimated worth is RM9 billion.
“Similar to the listing of Sunway Construction Group Bhd (SunCon) (SCGB MK, BUY, TP: MYR2.22) eight years ago, investors are expected to be rewarded via this value-unlocking exercise,” it said in its Malaysia Company Update today (Jan 8).
Therefore, the research house maintains its BUY call, with new RM3 TP from RM2.65, 35% upside and 3% yield.
The research house said it revised SHG’s EBITDA forecast up by 90% as performance of newer hospitals, especially Sunway Medical Centre (SMC) Seberang Jaya, is better than expected.
“The hospital’s EBITDA has already turned positive since 2Q23 considering that it only opened in November 2022. We expect the
hospital to start turning profitable at the profit before tax (PBT) level in the second half of 2024 (2H24).
“Given the expansion pipeline, SHG is likely to have 2,500 beds by 2027 from the current 1,100 beds. Under the shareholders’ agreement with Singapore’s sovereign wealth fund GIC Pte Ltd, the IPO for SHG has to be completed by Oct 2027.
“We expect the listing to happen sooner,” it said.
It also thinks that SHG may potentially be worth RM9 billion, at 20.1x EV/EBITDA and RHB IB’s FY24 EBITDA forecast of RM450m million, benchmarking against the valuation of the disposal of Ramsay Sime Darby Healthcare in November last year.
“Upon the potential listing in FY25F-26F, SHG may have a market cap of RM10 to 12 billion (Sunway has an 84% stake in SHG). Sunway’s market cap is now only at RM12 billion,” it said.
RHB IB advised investors to start positioning as Sunway would offer a cheaper entry to the listing of SHG.
“Investors who have been following Sunway would remember how the group was re-rated before the listing of SunCon in 2014 to 2015, and how they were rewarded from the demerger.
“During the listing of SCGB, Sunway’s shareholders were entitled to 1-for-10 distribution in specie of free SCGB shares and post listing, shareholders also received a 26 sen special dividend.
“We expect Sunway’s shareholders to be rewarded similarly via the value-unlocking exercise,” it said.
The research house said, stripping off the valuations of all listing 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.
RHB IB added it is in the view that Sunway’s strategic landbank such as the parcel at Velocity, South Quay, as well as 1,770 acres in Iskandar Malaysia just off the Tuas link is a jewel given all the catalytic developments and the upcoming establishment of Johor-Singapore special economic zone (JSSEZ).
