Results

1Q13 core net profit of RM119.9m (+17.8% yoy) came below expectations, accounting for 15.0% and 17.0% of HLIB and consensus full year forecast respectively.

Adoption of MFRS10 effective 1st Jan 2013 has resulted in consolidation of ParkwayLife REIT into the group as a subsidiary instead of associate, and equity accounted for Khubchandani Hospital as a JV.

Deviations

Lower-than-expected top line coupled with higher-thanexpected staff cost and lease expenses.

Dividend

None.

Highlights

Comparing to initial plans, the target completion dates for 10 projects were delayed while only 1 (Gleneagles KL) was brought forward (see Figure #3). IHH blamed the delays on: 1. Subdued economic condition in Singapore. 2. Malaysian contractors are facing problem of workforce shortage. 3. Regulatory / licensing issues in Turkey but is solved. Undoubtedly, these hiccups, although not permanent, will delay previously anticipated bullish growth plan.

Mount E. Novena: 40-45 patients per day with average revenue per inpatient admission (ARPIA) on par with other Singapore hospitals. For better efficiency, it is currently under Mount E. Hospital’s management and being treated as an extension.

Parkway Pantai: Inpatient admissions volume was flat qoq in Singapore at 14.3k while ARPIA advanced by 8.3% qoq to RM20.7k. Volume in Malaysia contracted by 1.9% qoq from 41.3k to 40.5k but this was cushion by higher ARPIA by 4.2% qoq reaching RM4.6k

Acibadem: Volume raised by 9.6% qoq due to winter season but ARPIA fell marginally by 2.2% qoq to RM9.8k.

IHH shared that it will continue to explore opportunities in oversea markets especially in China, India, Vietnam, Indonesia and Myanmar.

Catalysts

Global population growth, ageing demographics, more affluent community, proliferation of medical tourism, overwhelming healthcare demand.

Risks

Regulatory risks, competitive risks, FOREX risks, increase in staff cost and unable to unlock the synergies of the enlarged entity.

Forecasts

Updated model based on latest trend and operational data along with the deviations mentioned above. Hence, FY13-15 EPS were revised downward by 9.4%, 16.4% and 16.4% respectively.

Rating

HOLD, TP: RM3.53

• Positives – strong brand name, booming of medical tourism, high demand in quality healthcare services, continuous expansions and complemented by education arm.
• Negatives – high staff cost and retention of reputational medical practitioners.

Valuation

• We reiterate our HOLD call on the stock after rolling over our SOP valuations constituting a higher TP of RM3.53, an increase of 2.3% from previous TP of RM3.45.

Source: Hong Leong Investment Bank Research - 27 May 2013