Group revenue increased 7% qoq (due to Hari Raya holiday) driven by Malaysia’s higher inpatient volume (+4.2%). Additionally, Acibadem’s operations registered higher revenue of 17% qoq despite lower inpatient volume. This was due to increase in revenue intensity, +13.5%, due to better case mix. As a result, EBITDA grew 12.4% while margin expanded by 1.6ppts qoq to 21.6%.
Revenue grew 1.4% YoY to RM2.8bn on the back of healthy organic growth of existing operations including continued ramp up of new hospitals (GHK & Altunizade). Overall, total inpatient admissions and average revenue intensity grew 0.7% and 11% yoy respectively (refer table 2). Consequently, EBITDA rose 5.2% on the back of better operating leverage achieved.
Contrary to expectations, 9MFY18 EBITDA trailed our estimates at 65% despite core profits coming at >100%, distorted by fluctuations in forex losses at Acibadem which saw a huge MI charge off. Going forward, we expect consolidation efforts from the acquisition of Fortis and increased in Acibadem shareholding to 90% together with expansion plans into Hong Kong and China would provide structure growth to IHH’s earnings.
Our earnings, TP and recommendation are currently under review as we relook at our valuation on the stock. We believe near term earnings risks are inherent due to currency fluctuations but long term prospect could be promising amidst increasing exposure in emerging markets.
Source: BIMB Securities Research - 28 Nov 2018
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