- We reaffirm our HOLD recommendation on IHH Healthcare with an unchanged fair value of RM3.60/share, based on a sum-of-parts valuation, following the announcement of its FY13 numbers.

- Stripping off the sale of medical suites, consolidation of PLife REIT and EIs, IHH ended FY13 with a strong note, with core net profit of RM179mil in 4QFY13, which extended its FY13 core net earnings to RM603mil.

- The results were in line with expectations, accounting for 97% and 96% of our and consensus estimates, respectively.

- A first and final dividend of 2.0sen/share was declared. IHH officially announced a dividend payout policy of 20% of earnings.

- For the full year, revenue jumped by 70% YoY while EBITDA grew by 32% YoY on a normalised basis, as a result of full-year consolidation of Acibadem, higher operational efficiency, inpatient volumes and ramp-up of new hospitals. Savings in finance cost from the recapitalisation of Acibadem in 4QFY12, contributed to the strong EBITDA.

- Normalised EBITDA margins improved to 22.1% from FY12’s 19.7%. Mount Elizabeth Novena, Acibadem Ankara and Acibadem Bodrum turned EBITDA positive in FY13.

- The exposure of IHH’s business to a strong SGD should mitigate the impact of the volatile Turkish Lira, given Acibadem’s USD denominated receipts from medical tourism.

- Looking ahead, IHH’s earnings growth will continue to be buoyed by bed capacity expansion, improved operational efficiency and an influx of medical tourist. We are introducing our FY16F earnings of RM968mil.

- The trend of growing private healthcare demand in IHH’s key markets is expected to support its expansion plans.

- Malaysia and Turkey will be the key growth driver for its hospital expansion, while Singapore will see a ramp-up of bed capacities at Mount Elizabeth Novena. Overall, hospital bed capacity is expected to rise by 71% to 7,140 beds, while beds for joint ventures and hospital management agreement is expected to increase by 33% to 2,271 in the coming years.

- From a valuation standpoint, IHH’s FY14F PE of 44x is relatively expensive in comparison to its regional peers’ average of 29x.

Source: AmeSecurities