Topline boosted by one-off items and consolidation. IHH‟s revenue for 2Q12 increased 230.6% y-o-y to RM2.7bn from RM816.0m in 2Q11. Likewise, on a q-o-q basis, revenue jumped 111.4% from RM1.3bn in 1Q12. A one-off income from the sale of medical suites in the newly completed Mount Elizabeth Novena Specialist Centre in Singapore contributed 44.8% of the revenue, ie RM1.2bn. The consolidation of 3 months of Acibadem‟s results in 2Q12 compared to 2 months in 1Q12 also boosted revenue numbers. However, on an annualized basis, Acibadem‟s revenue growth was generally flat q-o-q.

 

Decent growth in Parkway Pantai. Excluding the sale of medical suites, Parkway Pantai‟s revenue grew 5% q-o-q and 15% y-o-y to RM889.4m. while EBITDA grew 0.8% q-o-q and 22% y-o-y to RM189.6m for 2Q12. Both Malaysia and Singapore hospitals recorded higher inpatient admissions of 4% and 8% respectively compared to 2Q11, while revenue per inpatient also jumped as a result of price increases and more complex cases undertaken by the hospitals. Contributions from this segment will continue to be the main driver of growth for IHH as operations in Mount Elizabeth Novena hospital are ramped up and capacity expansion in Gleneagles Penang is completed by the end of this year.

 

The first phase of Mount Elizabeth Novena hospital is expected to be completely opened with 180 beds by 4Q12, to be expanded to 333 beds by 2H13. Meanwhile, we expect Gleneagles Penang to see double digit growth next year from its capacity expansion.

 

Acibadem Holdings higher on full quarter consolidation. Acibadem‟s revenue for 2Q12 rose 43% q-o-q to RM556.4m from RM388.2m, while EBITDA rose 18.8% to RM96.9m compared to RM81.5m in 1Q12. However, this was due to the impact of a full quarter‟s consolidation of Acibadem‟s results in 2Q compared to only 2 months in 1Q, as IHH acquired Acibadem on 24 January 2012. We note that there is a significant reduction in EBITDA margins, from 21% in 1Q12 to 17% in 2Q12, which may be due to the seasonality factor of lower revenues in the holiday season where there are less elective admissions. For Acibadem, patient volumes and revenue are highest during the winter months from November to March.

 

Revising our earnings forecast upward. We are adjusting our 2012 forecast to account for the impact of extraordinary items. The sale of medical suites has boosted IHH‟s EBITDA and core net profit significantly by RM238.3m and RM193.6m respectively. Hence, we have tweaked our 2012 revenue forecast by 1.7% to RM6.1bn from RM6.0bn, while leaving 2013 unchanged. We have also adjusted for lower finance costs and lower effective tax rates, the latter to account for exceptional items which are mostly non-taxable. Consequently, our EBITDA forecast has been revised upward to account for higher growth in Parkway Pantai, while expected growth for Acibadem has been slashed. Our 2012 EBITDA forecast has been raised 15.4% from RM1.20bn to RM1.39bn, while 2013 EBITDA is raised 6.0% from RM1.44bn to RM1.53bn. EBITDA margins are effectively increased 2.7% and 1.2% for 2012 and 2013 respectively.

 

Target Price raised to RM3.31. As a result of higher EBITDA forecasts, we are revising our target price to RM3.31 based on 2013 sum-of-parts valuations with individual EV/EBITDA multiples assigned for each country. The overall 2013 forward EV/EBITDA multiple for the group is 18x compared to the global average of 10x, while the implied forward P/E is 34.5x which is also a premium to global peers average. These valuations are justified given the scarcity premium that IHH commands.