Investment Highlights

• We maintain our HOLD recommendation on IHH Healthcare with an unchanged FV of RM5.30/share based on DCF (WACC: 8.3%, terminal growth rate: 3.5%). Our fair value of RM5.30/share implies an FY19F PE of 40.9.

• 9MFY18 core net profit came in within our full-year forecast at 77%, but exceeded market’s expectations at 90% of full-year consensus estimates. However, reported PATAMI plunged 86% due to higher FX losses from Acibadem’s non-Turkish lira borrowing amounting to RM1,089.1mil.

• Key highlights of IHH’s 3QFY18 results included:

1.  IHH’s 9MFY18 topline grew marginally by 1.2% YoY. This was mainly on the back of revenue growth in Parkway Pantai of 3%. Its Singapore operations saw an increase of 0.8% in inpatient admissions while revenue intensity improved 7.3%. This was driven by an increase in local patients. Its Malaysia operations inpatient admission growth was flat but its revenue intensity increased 6.8% which resulted in a 4.1% improvement in the segment’s EBITDA.
2. Its India hospitals’ revenue dropped 7.7% but revenue intensity (average revenue per inpatient admission) grew 11.8%. This is due to the loss of several key specialist doctors. On the other hand, its Gleneagles Hong Kong Hospital’s start-up losses have decreased to RM138.7mil (from RM218.7mil in 9MFY17) in 9MFY18. Its Hong Kong Hospital has 140 beds in total with an average 50% occupation rate.
3. IHH’s Acibadem operation saw an increase in inpatient admission of 10% while its revenue intensity grew 21.8%. This is due to a higher number of complex cases taken and an increase in number of foreign patients.
4. EBITDA improved 5% YoY to RM1,753.6mil in 9MFY18 due to organic growth of existing operations and the continuous ramp-up of Gleneagles Hong Kong and Acibadem Altunizade, which opened in March 2017.
5. Inpatient metrics across key markets were healthy. IHH recorded inpatient volume growth of 2.9%. The number of inpatients was 427.6K in 9MFY18. Subsequently, its overall revenue intensity improved 6.6%.

Source: AmInvest Research - 28 Nov 2018