- We maintain HOLD on IHH Healthcare Bhd with an unchanged SOP-based fair value of RM5.55/share.

- IHH Healthcare reported a healthy 27% YoY rise in core earnings to RM461mil for 1H15. This is on the back of a 13% topline and EBITDA improvement. Earnings are within expectations – making up 49% of both our and market consensus.

- Sequentially, 2Q core earnings rose 3% to RM234mil – in tandem with a 4.5% rise in revenue. On a YoY basis, 2Q core earnings rose by 22%.

- The stronger earnings can be attributed to higher revenue intensity across its three home markets (Singapore, Malaysia, Acibadem) as well as the continuous ramp-up of capacity. Broadly, IHH saw higher revenue intensities for all three markets due to more complex cases being undertaken and price increases to compensate for cost inflation.

- The breakdown of YoY revenue intensities and inpatient admissions growth for 1H are as follow:- (i) Inpatient volumes: Singapore (+6%), Malaysia (-0.1%) Acibadem (1%); and (ii) Revenue intensities: Singapore (+4%), Malaysia (+14%), Acibadem (24%).

- EBITDA margin was sustained at 25.6% (vs. 25.7% in 1HFY14) due to better operating leverage (as hospitals were being ramped up). Recall that Acibadem Atakent was opened in Jan 2014, Manjung in May 2014, and Gleneagles KK in May this year.

- Mt. Elizabeth Novena Hospital remained a strong earnings driver with a 75% growth in EBITDA for 1H15. The market continued to see higher volumes from both domestic and foreign patients. For Malaysia, inpatient volumes growth was flat on the back of the GST implementation in April.

- We are unperturbed by the volatile exchange rates as IHH hedges its currency risks by borrowing in the same currency as its foreign operations. For 1H15, IHH recorded a net forex translation gain of RM527mil as the stronger SGD (vs. RM) helped to offset the weaker Turkish Lira.

- All in, IHH’s performance remains on track on the back of higher volumes, improved efficiency, and more complex cases being undertaken. We maintain HOLD as we deem it to be fairly valued at 49x PE, vs. the regional peers’ average of 50x.

Source: AmeSecurities Research - 27 Aug 2015