• IHH Healthcare’s (IHH) earnings continue to strengthen with 4Q17 core earnings growing strongly by 29% qoq while yoy core earnings decline narrowed to -6% (3Q17: -34% yoy).

• Overall, we estimate IHH’s FY17 core earnings fell -17.2% to RM989m to be largely in-line with our forecasts at 105% but exceeded consensus by 49%.

• A first and final DPS of 3sen was declared, matching that in FY16 and in line with our expectations

• Maintain HOLD with an unchanged TP of RM6.10. With the robust recovery in FY17, we expect earnings would continue to strengthen in FY18.

Shaking off its growing pains

IHH’s core earnings continue to strengthen in 4Q17 as it slowly but surely shakes off its growing pains. Sequentially, core profits grew 29% to RM314m. While this was largely on lower effective tax rate, it was heartening to see that core pretax rose 9% qoq while earnings at EBITDA/EBIT levels were up 10%/18% qoq. The improvement was on combination of a seasonally strong quarter as seen with higher patient volume at the 3 key home markets. The improvement was also on reduced start-up costs from opening of two new major hospitals in Mar 2017 as capacity and/or occupancy rate picks up at these new hospitals.

Encouraging signs on yoy basis

The yoy earnings decline for 4Q17/FY17 was largely explained by the start-up costs from the two major openings – Gleneagles Hong Kong (GHK) and Acibadem Altunizade. Also worthy mention was the EBITDA expansion +0.7ppts yoy to 22.4%. Overall, IHH’s FY17 core earnings fell 17% yoy to RM989m which is inline with our expectations but well ahead of consensus by 49%.

Volume trends and seasonal factors

Inpatient admissions at its 3 key home markets grew 11% in FY17 to over 487k inpatient admissions driven mainly by Turkey with opening of Acibadem Altunizade. Revenue intensity, however, eased in 4Q17 but for FY17, overall revenue intensity grew 3%.

Stronger quarters ahead

Overall, we expect stronger earnings ahead as capacity and bed occupancy at the new hospitals continues to be ramped up.

Maintain HOLD

Maintain HOLD with an unchanged RM6.10 TP (based on 53x FY17 EPS). We believe earnings risks are in store as it pursues its growth ambitions but we are of the view that this is balanced out by its solid long-term earnings outlook. Accumulate on dips.

Source: BIMB Securities Research - 28 Feb 2018