KUALA LUMPUR (Sept 7): The Delhi High Court-ordered forensic audit into disputed Fortis Healthcare Ltd share transactions is unlikely to have a material impact on IHH Healthcare Bhd (KL:IHH), but an adverse finding could complicate its path to majority control of the Indian unit, BIMB Securities said.
The court ordered the forensic audit on Aug 31 to examine the alleged dissipation of Fortis shares previously held by the Singh brothers, as well as transactions surrounding IHH’s investment in Fortis, including Fortis’ subsequent acquisition of assets from RHT Health Trust. This stems from a long-running dispute initiated by Japan’s Daiichi Sankyo.
“An adverse audit finding could extend the legal battle and complicate IHH’s path towards majority control,” said BIMB in a note to clients on Monday.
However, IHH’s management hopes a clean forensic review could instead mark one of the final major chapters in a dispute that has dragged on for years, the research house said.
Analysts who recently attended IHH’s investor conference call said Fortis remains on track with its brownfield expansion and potential mergers and acquisitions, while the integration of Fortis with Gleneagles is also progressing as planned. IHH continues to target raising its stake in Fortis to 51% over the next three to five years.
RHB Investment Bank estimated that if Fortis were named a judgement debtor for Daiichi Sankyo’s full 53 billion Indian rupee (equivalent to about RM2.5 billion) award, IHH’s 31.17% share would amount to approximately RM790 million, translating into a nine sen impact on its target price.
Using Daiichi’s narrower primary claim, based on the current market value of the 52.9 million allegedly dissipated shares of about 4.84 billion Indian rupee, the impact would be about eight sen, RHB said, based on its back-of-the-envelope calculation.
“We believe these hypothetical financial extremes could be easily absorbed by IHH’s strong balance sheet and operating cash flow,” it said in a separate note.
RHB said temporary trading pressure, potential weakness in IHH’s environmental, social and governance score and regulatory scrutiny from the Securities and Exchange Board of India could persist during the audit period.
However, any resulting weakness in IHH’s share price could present an attractive entry point, as its fundamental growth drivers remain intact, it added.
Hong Leong Investment Bank, meanwhile, advised investors to look beyond the temporary legal overhang, noting that both IHH and Fortis have engaged with investors to provide reassurance over their legal compliance.
It said investors should instead focus on the recent positive earnings surprise and stronger earnings momentum expected across regions in the second half of the financial year ending Dec 31, 2026 (FY2026).
IHH shares have fallen more than 7% year to date. The counter rose one sen, or 0.13%, to RM7.96 at the time of writing on Monday, giving the group a market capitalisation of RM70.34 billion.
Analysts remain largely bullish on the stock, with 24 out of 26 of them carrying “buy” calls and two having “hold” calls. The 12-month consensus target price of RM10.20 implies a potential upside of 28.1%.
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