- We re-affirm our HOLD recommendation on IHH Healthcare with an unchanged fair value of RM3.25/share (under-review), based on FY13F’s sum-of-parts valuation.

- Pending a meeting with management this month, our EPS outlook and fair value are maintained for now. The stock had performed well, with share price rising by a significant 18% YTD and outperformed KLCI by 14% YTD.

- We are positive on its latest development. Parkway (Shanghai) Hospital Management Ltd has received the Business License to establish a foreign wholly-owned enterprise reinvestment clinic, Suzhou Industrial Park Yuan Hui Clinic Co. Ltd, in China.

- The validity period of the said licence is 20 years, beginning from 29 May 2013 to 28 May 2033. The intended principal activity of Yuan Hui Clinic is to provide medical and healthcare outpatient services.

- Apart from growing key markets (Singapore, Malaysia and Turkey), IHH is also accelerating international foothold through joint ventures, consultancy agreements and Hospital Management Agreements. Although it accounted for a small 5% EBITDA contribution in 1QFY13, we see potential growth from the international segment in the longer term.

- Notably, the upcoming City International Hospital in Ho Chi Minh will be the latest international addition and also marks its first foray into Vietnam. This 320-bedded hospital is anticipated to be opened in a couple of weeks, or by 1HFY13. Equipment commissioning is currently in progress.

- Associated with IHH’s premium and strong brand equity, the City International Hospital is likely to cater to the middle- to- upper income patients as will be the first premier international hospital in Vietnam, in our view.

- Having said that, the recently awarded sites in Hong Kong look favourable as the hospital pricing appears to be at least 20% higher than those in Singapore. We understand that this is to serve the affluent Hong Kong market.

- To put things into perspective, successful penetrations into the tightly regulated and largely underserved markets are key catalysts; another four international hospital are in the pipeline. IHH is on a lookout to expand into other international markets with an eye on India and China, we gather.

- In terms on valuation considerations, our preference within the healthcare universe remains on KPJ Healthcare (BUY, RM8.00/share). While we look forward at IHH’s position as one of the major beneficiary riding on the growing healthcare trend, valuations are expensive, with the stock trading at trading at 55x FY13F PE or at a premium to its peers.

Source: AmeSecurities