SINGAPORE (Apr 17): CIMB is not revising IHH Healthcare's FY18-20 earnings estimates pending further developments on its bid for Fortis.

On Apr 11, IHH made a non-binding offer of up to INR 160 ($3.20) per Fortis share in cash for both its hospital and diagnostic businesses.

But in the latest twist of events, Fortis' board of directors says they are unable to engage with IHH, citing binding agreements with Manipal Health Enterprises, Manipal Global Health Services and private equity firm TPG Asia, collectively known as Manipal-TPG.

See: Binding pact with Manipal Health prevented Fortis from engaging with IHH

Manipal-TPG is proposing a demerger of Fortis, valuing the group at INR 80.4 billion or INR 155 per share. Under this new deal, Fortis shareholders will obtain 13.1 shares in the combined entity for every 100 shares they own.

"We think IHH might next take its offer directly to Fortis’ shareholders," says CIMB analyst Ngoh Yi Sin in a Monday night report.

There is also a third suitor. Indian business families, the Hero Enterprise Investment Office and the Burman Family Office, have jointly submitted a binding offer of INR 12.5 billion last week, via a two-stage preferential share allotment.

They will first invest INR 5 billion as fresh equity at INR 156/share, with a subsequent tranche of INR 7.5 billion upon the finalising of due diligence. This could bring their combined stake up to 18.6% from the current 3%.

CIMB says Fortis is attractive because the second largest private hospital chain in India after Apollo and has over 41 healthcare facilities and 4,800 operational beds, based on its FY17 annual report.

IHH entered the India market in 2015, when it bought 51% of Continental Hospitals for INR 3 billion, and 74% of Global Hospitals for INR 12.8 billion.

Given that India is its 4th largest healthcare market, CIMB believes IHH is keen to expand its footprint there, backed by its recent issuance of US$500 million ($655 million) in perpetual securities.

If IHH is successful in acquiring a controlling stake in Fortis, Ngoh expects integration efforts to weigh on its near-term profitability, but could unlock greater economies of scale in the medium term.

"IHH’s global track record and established management team in India would be able to help in turning Fortis around, in our view," adds Ngoh.

UOB is maintaining its "add" on IHH with RM 6.86 ($2.31) target given the stock could re-rate on the back of FY18 earnings recovery and continual ramp-up of Gleneagles Hong Kong, with the Singapore and Malaysia operations offering a sustainable earnings base.

As at 1.17pm, shares in IHH are trading at $2.04 in Singapore and RM 6.11 in Malaysia or 61 times FY18 core earnings.