- We maintain HOLD on IHH Healthcare Bhd with a higher SOP-based fair value of RM5.40/share, as we roll over our base year to FY15F.

- IHH Healthcare reported a strong 29% growth in FY14 core earnings to RM785mil on the back of a 9% expansion in revenue. Its FY14 earnings were in line with both our and market expectations.

- IHH also proposed a first and final single-tier dividend of 3 sen/share.

- IHH’s strong FY14 performance was underpinned by:-

(i) Higher YoY inpatient volumes: Singapore (9%), Malaysia (9%), and Acibadem (9%); and

(ii) Higher revenue intensity growth: Singapore (4%), Malaysia (9%), and Acibadem (4%).

- The revenue growth was contributed by higher revenue intensity as well the commencement of the Acibadem Atakent Hospital and Pantai Hospital Manjung in Jan and May last year, respectively.

- Notably, the Atakent hospital had achieved positive EBITDA of RM8mil in 4Q (vs. RM5.6mil loss in 3Q), within only a year.

- Mount Novena’s EBITDA had also continued to improve with 170 beds already operational and a 60% occupancy rate.

- Given the improved efficiency and continued ramp up in beds, the group’s FY14 EBITDA margin improved by 1.9ppts to 26.4% (from 24.5% in FY13).

- We understand that the GST rollout will have a minor impact on margins as majority of the doctors in Malaysia are contract-based (thus, doctors fees are categorised as GST standard-rated).

- While the strengthening SGD is positive, it continues to be offset by the weakening Lira. Positively, Acibadem’s USD exposure continues to be hedged through medical tourism receipts in USD.

- While IHH has a strong track record with superior margins to its peers’, we deem its valuations to be fair at 47x FY15F PE currently, compared with the regional peers’ average of 44x. Hence, we maintain our HOLD call.

Source: AmeSecurities