Sunway Berhad (KLSE: SUNWAY) is on the news headlines recently for plenty of good reasons.
Firstly, it has saw its highly anticipated healthcare arm IPO – Sunway Healthcare Holdings Bhd (KLSE: SUNMED) surging by a massive 28% surge on its debut, climbing from an IPO price of RM1.45 to close at RM1.85. After a few more trading days, the stock had rallied further to RM2.42.
For retail investors navigating the current market, this event is not an isolated healthcare narrative. It is the linchpin of a much larger, highly calculated corporate strategy by Sunway Berhad to consolidate the Malaysian construction and property sector.
A 100 P/E ratio – fundamentally sound or priced for perfection?
Although share prices have corrected as of time of writing, there was a period where SUNMED’s share price implied a 100x P/E ratio.
SUNMED’s IPO is the largest in Malaysia in nearly a decade, raising RM2.86 billion and establishing an initial market capitalization of RM16.7 billion. The 28% pop on debut and subsequent climb to RM2.42 values the hospital operator at nearly RM27.8 billion.
Mathematically, at the RM2.42 share price, the market is trading SHG at a trailing Price-to-Earnings (P/E) ratio of over 100x. The market is not buying current earnings; it is heavily pricing in future capacity (SHG plans to double its bed count by 2032), the defensive nature of the healthcare sector, and the region’s medical tourism boom. The valuation is strictly a “growth premium”.
The thesis of Malaysia becoming a regional medical hub is no far-fetched. Malaysia is well known for being able to offer world class treatment at the fraction of the cost compared to neighbouring Singapore.
While Singapore might boasts far better cutting edge facilities, let’s be frank – if wealthy South East Asians can pick and choose, they’d opt Malaysia for most of the situation, and then Singapore if Malaysian specialists can’t solve the problem.
While the thesis holds ground, it is also key to note that Sunway Healthcare is not the only beneficiary of the booming Malaysian medical tourism.
The Value Unlock for Sunway Berhad
The immediate beneficiary of SUNMED’s massive valuation is its parent company, Sunway Berhad. Before the IPO, Sunway Berhad’s share price traded at a conglomerate discount. The market historically struggles to accurately price a company that mixes high-margin healthcare assets with cyclical property and construction arms.
By spinning off SHG, Sunway Berhad executed a classic “value unlock.” The market can now assign a transparent, premium valuation to the healthcare arm. Because Sunway Berhad retains a significant stake in SHG, this premium directly lifts Sunway Berhad’s Sum-of-the-Parts (SOTP) valuation. As SHG’s share price rises, the intrinsic value of Sunway Berhad’s balance sheet expands proportionately, pushing its own market capitalisation toward the RM40 billion mark.
The IJM Takeover: High Value Acquisition Currency
This all leads up to the RM11 billion conditional voluntary takeover of IJM Corporation. Sunway Berhad is offering RM3.15 per IJM share. The critical detail is the structure of the deal: 10% in cash, and 90% in new Sunway Berhad shares.
This is where the SUNMED’s IPO becomes a strategic weapon. By unlocking the value of its healthcare arm, Sunway Berhad ensured its own stock price remained highly buoyant, if not higher in tandem.
SUNWAY’s strong share price creates a highly valuable acquisition currency. However, with its dividend-in-specie payout – distributing SUNMED’s shares as a dividend to its shareholders (1 for every 10 Sunway shares held), independent advisers note that the “implied consideration” for IJM shareholders is roughly RM3.08 per share after adjusting for this distribution, which has been cited as a reason for IJM’s board to recommend rejection.
The Retail Takeaway and my Verdict
The situation is somewhat a masterclass in capital management. SUNWAY might have catalysed the high-premium healthcare market to inflate its overall corporate valuation, which it is now using as leverage to buy hard, tangible assets (IJM’s land and RM7.6 billion order book) on the cheap.
For retail investors, the 99.27% approval from Sunway shareholders on March 26 signals extreme confidence in this strategy. While institutional pushback from entities like PNB (which rejected the offer) means a compulsory delisting of IJM is unlikely, Sunway only needs 50% plus one share to take control.
Investors should view SUNMED as the high-growth engine, and the newly enlarged Sunway Berhad as the dominant infrastructure and property powerhouse of the coming decade.
Whether if everything was masterfully crafted and executed is still a doubt, because no one could have foresaw SUNMED’s blistering rally post IPO that has buoyed SUNWAY’s share price as well, potentially swaying IJM shareholders to accept the takeover.
However, to react and take advantage of the situation, is still a masterstroke that many other listed companies CEO could take a leaf out of.
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