Asiri Hospital Holdings PLC (ASIR) currently is the largest healthcare player in the country with a bed capacity of ~650. The group has a renowned brand name through a variety of specialisations in surgery, neuro and medical services. We believe ASIR continues to offer compelling investment value despite the recent share price rise and the EPS dilution coming from the factoring in of current capital restructuring process. In this report, we assume that the proposed 19% private placement issue to Actis Investments and the consequent restructuring will materialize. With a 16.7% upside to the target price we initiate ASIR with a BUY.
Capital restructuring and its effects
We forecast the proposed capital restructuring will take place. This move will dilute the EPS and forecast valuations of the group. The new issue would amount to 19.1% of the issued shares and the group would receive LKR 2.27bn.
Revenue to grow by forward CAGR of 12.5%
We expect ASIR revenue to grow by 16.1% to LKR 7.1bn and 12.7% to LKR 8.0bn in FY 2013E and FY 2014E respectively. Steady occupancy levels in the hospitals within the group and price revisions will aid in top line growth in our view. The Central hospital will be going into its third year of operation and this revenue stream has been a considerable boost to group top line.
Margins growing with better utilization
Group EBIT margin stood at 27.2% in FY 2012, and we expect margins to remain stable resulting from the steady top line growth, and the improvement in the EBIT margin of the Central Hospital. We expect ASIR recurring net profit to grow by 87.3% to LKR 1.2bn and 28.5% to LKR 1.5bn in FY 2013E and FY 2014E.
Valuation: Attractive with a upside potential of 16.7%
Based on the free cash flow valuation the stock is valued at LKR 11.43. The potential target prices at different possible assumptions are provided in page 10. On relative valuations, the stock trades at a forward PER of 11.9x on FY 2013E earnings and 10.2x on FY 2014E earnings. The sector historical PER (as per the CSE) stands at 18.2x as at 30 August 2012. The expected NAV per share is LKR 6.85 and LKR 7.01 for FY 2013E and 2014E respectively.