IHH Healthcare Bhd
(Nov 25, RM6.39)
Maintain neutral call with a target price (TP) of RM6.08: IHH Healthcare Bhd third quarter ended Sept 30, 2016 (3QFY16) revenue was RM2.44 billion (+18.3% year-on-year [y-o-y]), while its nine months of FY16 (9MFY16) stood at RM7.4 billion (+20% y-o-y). Excluding exceptional items, IHH 3QFY16 core net profit increased 73.2% y-o-y, bringing its year-to-date core net profit to RM643.5 million (+9.5% y-o-y), below our and the consensus estimates, accounting for 60.7% and 65.1% of the full-year estimates respectively.

The group expects pre-operating and start-up costs of new operations to partially erode its profitability during the initial stages. In addition, staff cost is expected to rise due to increased competition from trained healthcare personnel. As such, we adjust our cost accordingly and cut our earnings estimates by 13% to 23% for FY16 to FY18F, and maintain our “neutral” call on IHH with a lower TP of RM6.08 (previously RM7.02), premised on our FY17 blended enterprise value/earnings before interest, taxes, depreciation and amortisation (Ebitda).

Furthermore, Parkway Pantai revenue was higher by 19.6% y-o-y at RM1.54 billion for 3QFY16, while Ebitda increased 14.2% y-o-y to RM354.4 million, on the back of continuous ramp-up of its Mount Elizabeth Novena Hospital in Singapore as well as contributions from its newly opened hospitals and acquisitions made in 2015.

On operations, the numbers of inpatient admissions in Singapore and Malaysia increased by 13.6% and 9% respectively. Its revenue per inpatient admission in Singapore declined by 3%, while for Malaysia, it increased by 10.2%. Its earnings were partially eroded by higher operating expenses and staff cost, start-up losses of RM2.3 million from new hospitals in Malaysia, as well as pre-opening expenses of RM19.7 million incurred for its coming Gleneagles Hong Kong.

Moreover, Acibadem Holdings revenue also increased to RM808.7 million (+17.8% y-o-y) in 3QFY16, while Ebitda declined by 10.3% y-o-y, on the back of higher staff costs as well as operating costs and rental expenses due to further depreciation of the Turkish lira against the US dollar. Quarter-on-quarter, Ebitda declined by 47.5% due to lower revenue and patient volumes during the summer months and a long period of holidays to celebrate Eid festivities. Overall, Acibadem inpatient admissions jumped by 47.9% y-o-y, mainly contributed by Acibadem City Group. Nevertheless, its revenue per inpatient declined by 9.7% y-o-y.

Looking forward, the latest project to be completed will be Gleneagles Hong Kong and Acibadem Altunizade in Istanbul, which is expected to be completed in the first half of 2017, while Acibadem Atasehir in Istanbul, Pantai Hospital Kuala Lumpur and Gleneagles Medini are all targeted to be completed by end-2017. — PublicInvest Research, Nov 25