IHH Healthcare Is Trading At A Premium Valuation: Can It Grow Fast Enough To Meet Expectations?

health heartIHH Healthcare (SGX: Q0F) is one of the largest global healthcare providers. In Singapore, it is most famous for its brand of hospitals like Parkway and Gleneagles.

Meanwhile, it might also be infamous for its “high” valuation amongst investors: The dual-listed company (in both Singapore and Malaysia) is currently trading at a price to earnings (PE) ratio of 56 times its earnings over the last 12 months.

In comparison, Raffles Medical Group (SGX: R01), a much smaller competitor to IHH, “only” trades at a PE ratio of 25.

Let’s took a look at IHH Healthcare’s growth potential and see if it really deserves its premium valuation in relation to some of its peers.

Not all healthcares’ created equal

The IHH Healthcare we see today is actually the result of many years of mergers and acquisitions. With a market capitalisation of S$14.3 billion, IHH Healthcare is some 6.6 times larger than Raffles Medical Group currently and about 28 times larger than Thomson Medical Centre was in 2010; Thomson Medical Centre runs its namesake maternity hospital along Thomson road in Singapore and was acquired by Singaporean billionaire Mr. Peter Lim in that year.

As of now, IHH Healthcare owns and operates four hospitals in Singapore, 11 in Malaysia, and has interests in another 16 hospitals through its holdings in Acibadem Healthcare Group, the largest healthcare group in Turkey. With that many healthcare assets under its banner, it’s not an exaggeration to label IHH Healthcare as a large corporation. But for investors who assume that such corporations (large ones) tend to grow slower, they might need to reconsider that assumption.

The company has some big expansion plans in the pipelines. For example, it is expecting two hospitals – the Gleneagles Kuala Lumpur and Pantai Hospital Kuala Lumpur – to be completed in Malaysia this year. That’s not all that’s happening in the country for IHH Healthcare – the company also has plans for a hospital each in Kota Kinabalu and Iskandar Malaysia.

Elsewhere in Asia, the company intends to bring the Gleneagles brand to Greater China by launching the Gleneagles Hong Kong in 2016.

Then, there’s also the company’s expansion in India to look forward to, which might be a very important one for investors to keep a close watch over: IHH Healthcare intends to build its first hospital in the country through a 50-50 joint venture but doing so would place the company in a head-on collision with Fortis Healthcare (India is considered Fortis’ home-turf), its largest competitor.

Foolish Summary

With its huge expansion plans in Malaysia and its venture into other overseas markets, IHH Healthcare is certainly not a slow-growing healthcare giant. However, is it really worth its premium valuation? That all depends on how well the company would be able to generate future profits from its expansion activities.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.