Results

FY13 core net profit of RM648.7m (+4.8% yoy) was within expectations, accounting for 102% of both HLIB and streets’ full year estimates.

FY12 results included one-off recognition of the sale of medical suites, which contributed revenue of RM1.2bn, EBITDA of RM238.3m and PAT of 193.6m.

Deviations

Within expectations.

Dividend

Proposed a first and final single tier cash dividend of 2 sen per share subject to shareholders’ approval at the forth coming AGM.

Adopted a dividend policy of not less than 20% of the Group’s PATMI, excluding exceptional items after taking into the consideration of available cash and equivalents, ROE and CAPEX.

Highlights

Inpatient admission volume: grew healthily qoq in all three key markets, coming out from the weak season due to summer months in Turkey (+5.5% qoq) as well as Hungry Ghost and Ramadhan festivals in both Singapore (+2.3% qoq) and Malaysia (+8.5%).

Average revenue per inpatient admission: all three home markets ended FY13 mixed with only Acibadem expanded 4.4% yoy while Singapore and Malaysia contracted by 1.6% yoy and 2.9% respectively.

Gleneagle Medini Hospital plans to market medical suites in 2H14 subject to obtaining all necessary approvals from the authorities.

IHH’s expects its presence in emerging markets to enjoy higher growth in demand for quality private healthcare driven by ageing demographics, growing upper / middle class and increased medical travelers from non-traditional markets to medical hubs.

Challenges include inflationary impact on staff costs, rentals and other operating expenses and start-up costs of newly commissioned hospitals. IHH plans to mitigate them by increasing mix of higher revenue intensity cases, price adjustments and improve operating leverage.

Catalysts

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

Risks

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

Forecasts

Tweaked model post final results release and rolled over our model. In turn, FY14-15 EPS was revised lower by 10% and 9.1% respectively.

Rating

HOLD
, TP: RM3.72

Positives – strong brand name, booming of medical tourism, high demand for quality healthcare services, continuous expansions and complemented by education arm.

Negatives – high staff cost and retention of reputational medical practitioners.

Valuation

Upgrade from SELL to HOLD after elevating our SOPderived TP by 13.1% from RM3.29 to RM3.72 (see Figure #4) as we rollover our valuations base year.

Also raised PPL and Acibadem’s EV/EBITDA multiple by 1x in tandem with peer’s.

Source: Hong Leong Investment Bank Research - 28 Feb 2014