SUNWAY: Healthcare Arm Spin-off Poised to Unlock Value, Analyst Reiterates ‘Buy’

Sunway Berhad is moving forward with the highly anticipated spin-off and listing of its healthcare arm, Sunway Healthcare Holdings (SHH), on the Main Market of Bursa Malaysia by IQ26. This strategic move is expected to unlock significant value for shareholders and enhance the group’s focus on its core segments, according to TA Securities.

Performance Review

SHH has demonstrated robust financial growth in recent years. Revenue surged from RM1.06 billion in FY22 to RM1.85 billion in FY24, achieving a compound annual growth rate (CAGR) of 32%. Over the same period, EBITDA increased from RM343 million to RM470 million, and net profit improved from RM210 million to RM258 million. Operational indicators also reflect strong demand, with inpatient admissions expanding from 59,726 in FY22 to 105,468 in FY24, and occupancy rates stabilizing between 79% and 82%.

Strategic Rationale and IPO Details

The initial public offering (IPO) will involve 1.97 billion shares, representing 17.2% of SHH’s enlarged share base. This includes an offer for sale by Sunway (507 million shares) and GIC (891 million shares), alongside a new share issuance of 575 million shares to raise fresh capital for SHH. The spin-off aims to provide Sunway shareholders with direct exposure to SHH’s growth, while the capital raised will fuel hospital expansion plans in key locations such as Seremban, Iskandar Puteri, and Putrajaya. Post-listing, Sunway’s stake in SHH will dilute from 84.0% to 69.5%, and GIC’s stake from 16.0% to 7.5%.

Future Outlook and Capacity Expansion

SHH has ambitious expansion plans, targeting to more than double its bed capacity to over 3,400 by 2032, aiming to be among Malaysia’s largest integrated healthcare groups. The company boasts a proven track record of new hospitals achieving EBITDA breakeven within 12 months. Proceeds from the public issue will primarily support these expansion efforts and existing facilities, along with the redemption of Islamic medium-term notes.

Impact on Sunway Berhad

Despite the dilution of Sunway’s effective stake to 69.5% post-listing, the impact on group earnings is viewed as manageable. This is cushioned by strong upcycles anticipated in Sunway’s property and construction segments, which are expected to support overall group earnings growth, even as healthcare’s direct contribution is diluted. The listing also provides a transparent market-driven valuation for the healthcare business.

Valuation and Recommendation

TA Securities maintains its Buy recommendation on Sunway Berhad with an unchanged target price (TP) of RM5.76 per share, reflecting a 17.1% upside from the last traded price of RM4.92. The valuation is based on a Sum-of-Parts (SOP) approach, incorporating a 5% ESG premium, justified by SHH’s robust expansion pipeline and strong operational track record. Investors are advised to accumulate Sunway shares ahead of the SHH listing, as the spin-off is likely to catalyse a re-rating by unlocking healthcare’s premium valuation and rewarding shareholders directly.