- We maintain HOLD on IHH Healthcare Bhd with a higher SOP-based fair value of RM6.40/share (vs. RM5.55/share earlier) as we roll forward our base year to FY16F.

- For the 9M period, IHH Healthcare reported a healthy 27% rise in core earnings to RM685mil. This is on the back of a 14% topline improvement and EBITDA growth of 13%. Annualised, core earnings are within both our and market expectations. 9M EBITDA margin was sustained at 24.8% (vs. 25% a year earlier).

- Sequentially, 3Q core earnings fell 5% to RM223mil in tandem with a 1.4% dip in revenue. This is expected as 3Q is generally a slower quarter due to the summer months in Turkey and holidays (e.g. Eid/Hari Raya celebrations).

- Nevertheless, 3Q core earnings rose 26% on a YoY basis, partly due to a reversion of over-provision of tax of RM15.2mil and exclusion of EIs (unrealised exchange loss of net borrowings).

- The breakdown of YoY revenue intensities and inpatient admissions growth for 3Q as follow:- (i) Inpatient volumes: Singapore (+0.7%), Malaysia (-0.2%) Acibadem (-4.7%); and (ii) Revenue intensities: Singapore (+3%), Malaysia (+10%), Acibadem (+20%).

- The topline growth was mainly driven by continued rampup at its existing hospitals and the newer ones. The muted volumes growth was also compensated by higher revenue intensities as more complex cases were undertaken.

- Notably, Acibadem Atakent hospital contributed RM3.7mil during the quarter (vs. loss of RM0.3mil a year earlier). Continental Hospitals (acquisition completed in March) also contributed RM15.9mil revenue and RM0.1mil EBITDA in 3Q.

- During the quarter, IHH commenced operations for Acibadem Bodrum (Oct) and Glenagles Medini (11 Nov). The latter currently has 40 operating beds (out of 150 planned).

- All in, IHH’s performance remains on track on the back of higher revenue intensity, expanding capacity and stronger operating leverage.

- We maintain HOLD as we deem it to be fairly valued at 46x FY16 PE (vs. the regional peers’ average of 47x). Our higher fair value results from a higher EV/EBITDA multiple of 25x (vs. 24x earlier) for its M’sia and Spore operations and as we roll-forward the base year to FY16F.

Source: AmeSecurities Research - 27 Nov 2015