• IHH’s 9MFY16 normalised PATMI of RM644m is within our expectation making up 73% of our full year forecast (Consensus below : 65%).
   
• Normalised PATMI fell by 6.0% despite strong revenue growth of 20.0% mainly due to higher cost of sales and staff expenses.

• We maintained our FY16 and FY17 net profit forecasts.

• Our target price is unchanged at RM6.25. Maintain HOLD. IHH 9M performance review. 9MFY16 normalised PATMI fell by 6.0% despite strong revenue growth of 20.0% mainly due to increase in cost of sales (+28.2% yoy); higher staff costs (+20.1%) and pre-opening expenses incurred to prepare Gleneagles Hong Kong for its opening next year. As a result, 9M EBITDA margin fell from 24.8% to 23.2%. Meanwhile depreciation was higher at RM556.7m vs. previous year’s RM445.6m due to commencement of new hospitals. Other operating expenses were 24.6% higher due to start-up costs incurred by new hospitals.

General outlook challenging. We reckon the short term outlook for the group to be challenging due to rising costs particularly medical consumables which are impacted by the weakened regional currencies. Nonetheless, with the continuous expansion programme and recession-free nature, we believe the long term view for IHH shall remain stable.

Financials. We maintained our FY16 and FY17 net earnings forecasts at RM885m and RM958m respectively.

View and valuation. Our target price is unchanged RM6.25 premised on revised 3-years rolling average PER of 53x. Maintain HOLD.

Parkway Pantai continues to expand. Parkway Pantai’s YTD revenue grew by 22% to RM4,594m as a result of the continuous ramp up of its Mount Elizabeth Novena Hospital in Singapore as well as contribution from its newly opened hospitals and acquisitions made in 2015. Its 9M16 revenue per inpatient admission fell by 1.1% to RM26,719 in Singapore while gained 6.2% to RM5,839 in Malaysia. The construction of Gleneagles Hong Kong with 500-bed capacity is in the pipeline and scheduled to commence operations by 1H17.

Acibadem Hospitals. Acibadem’s YTD revenue grew by 17% to RM2,512.5m, attributable to continuous ramp up of Acibadem Atakent Hospital as well as contribution from its newly opened Acibadem Taksim Hospital and the newly acquired Tokuda Group and City Clinic Group. Acibadem Holdings’ inpatient admissions grew 26.1% to 121,113 in 9M16 while, its average inpatient revenue per inpatient admission fell by 0.5% to RM9,974. Ongoing projects in Turkey, including Acibadem Altunizade Hospital which will be Acibadem’s largest facility with 325-bed capacity in Istanbul is scheduled to be completed by 1Q17.

Source: BIMB Securities Research - 25 Nov 2016