- We reaffirm our HOLD recommendation on IHH Healthcare with a higher fair value of RM3.90/share (vs. RM3.80/share previously), based on our sum-of-parts valuation, following an upward revision to our earnings.

- IHH’s 9MFY13 results came in above our expectation and were largely in line with consensus at 70%. The fasterthan-expected turnaround of its new hospitals at the EBITDA level had exceeded our expectations – specifically for Acibadem Bodrum, Acibadem Ankara and Mount Elizabeth Novena (opened in FY12).

- As such, we have tweaked upwards our FY14F numbers by 18% to account for the better-than-expected ramp-up of the recently opened hospitals.

- Excluding exceptional items and recognition of sale of medical suites in FY12, earnings surged by 45% YoY on the back of a 18% YoY increase in revenue and a 24% YoY gain in EBITDA.

- The strong performance was driven by organic growth of existing operations, ramping up of new hospitals, and nine months consolidation of Acibadem Holdings compared to only eight months last year.

- Despite a seasonally slow 3Q in inpatient admission due to the summer months in Turkey, Ramadan and Hungry Ghost festival periods in Malaysia and Singapore; revenue only saw a marginal 0.5% QoQ dip. EBITDA fell by 6% QoQ due to escalating cost pressures.

- Turkey remains as the group’s earnings potential. IHH will add another two new greenfield hospital projects in Istanbul – Kartal (120 bed) and Atasehir (180 beds). Kartal is targeted for completion in FY15, while negotiations for the rental agreement at Atasehir are ongoing.

- Expansion plans remain well on track. Bed capacity is expected to grow by 38% in Malaysia and >40% in Turkey in the next few years. Gradual ramp-up of bed capacity at Mount Elizabeth Novena (Phase 2: 150 beds) is expected next year.

- While we like IHH’s defensive medium- to-long term growth prospect and its position to leverage on the growing private healthcare sector in its key markets, we advocate a HOLD on the stock given its steep valuation.

- The stock is currently trading at 40x PE for FY14F, which is at >100% premium to its peers’ average.

Source: AmeSecurities