• 4Q18 EBITDA grew 22.3% qoq to RM752m due to seasonal factors and additional contribution from Amanjaya and Fortis.

• YoY EBITDA rose 19.1% on higher revenue and better operating leverage achieved. Overall, 2018 EBITDA trailed ours/consensus estimates at 92%/96% respectively but profits exceeded estimates.

• Near term outlook remains challenging on rising opex but we believe long term prospect remains promising amidst exposures in key emerging markets.

• A first and final DPS of 3 sen was declared (2017: 3sen) and in line with our expectations.

• Our TP and recommendation are currently under review.

QoQ performance driven by seasonality and acquisition

Group revenue and EBITDA rose 11.4% and 22.3% qoq. The growths were driven by combination of seasonally strong quarter, as seen with higher inpatient volume of 21.9% from 4 key home markets (Table 2), and additional contribution from new hospitals (Amanjaya and Fortis) acquired. Despite this, core net profit fell 76% due to higher effective tax rate and higher MI charge off.

Strong operational performance on YoY

Revenue grew 9.7% yoy to RM3.2bn on healthy organic growth at its existing operations, ramp up of new hospitals (GHK & Altunizade) as well as additional revenue of RM225.9m from acquisitions of Amanjaya (Oct 2018) and Fortis (Nov 2018). Overall, total inpatient admissions and average revenue intensity rose 17% and 9.1% yoy respectively (Table 2). Consequently, EBITDA grew 19.1% with margin expanded by 1.9ppts yoy to 23.8% on the back of better operating leverage achieved.

Near term outlook challenging

Revenue for 2018 grew slightly by 3.4% yoy to RM11.5bn on stronger operational performance across all home markets, while EBITDA rose 7.7% despite strengthening MYR yoy. Overall, 2018 EBITDA trailed our estimates at 92%. Going forward, we expect IHH’s near-term outlook remains challenging on the back of rising operational cost, higher development cost from expansion and greenfield hospitals both locally and abroad as well as consolidation efforts of Fortis. Additionally, deleveraging of Acibadem’s foreign currency debts is still work in progress.

Maintain forecast pending review

Our earnings, TP and recommendation are currently under review as we relook to revamp our valuation and view on the stock. Despite the challenging near-term outlook, we believe IHH’s long term prospect appears promising due to its expanding footprint in emerging markets and Healthcare being largely a recession-proof industry.

Source: BIMB Securities Research - 28 Feb 2019