Results

• FY14 turnover of RM7.3bn was translated into core net profit of RM785.0m. This came in above our expectations but in line with consensus, accounting for 118.1% and 102.7% of HLIB and consensus full year estimates, respectively.

Deviations

• Higher-than-expected revenue derived from growth in patient volume and revenue intensity of existing operations.

Dividend

• Proposed a first and final single tier cash dividend of 3 sen per share subject to shareholders’ approval at the forth coming AGM (FY13: 2 sen).

• 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 (4Q14): grew healthily YoY in all three key markets, with SG, MY and Turkey gained 6.8%, 1.9% and 12.7%, respectively. QoQ growth was a mixed bag, with SG being the only one recording a negative growth of 2.8%. MY and Turkey grew by 3.2% and 9.1%, respectively, as the weak season due to summer months in Turkey as well as Hungry Ghost and Ramadhan festivals in Malaysia ended.

• Average revenue per inpatient admission: intensity strengthened YoY in all three home markets with SG, MY and Turkey increased by 7.4%, 11.5% and 8.4%, respectively. Sequentially, revenue intensity also improved in all abovementioned markets by 3.0%, 0.5% and 11.3%, respectively.

• IHH is poised to capitalise on the growing demand for quality private healthcare in emerging markets, which are driven by (1) demographics of home markets; (2) faster growing upper and middle class; and (3) increased medical travelers from non-traditional markets to medical hubs.

• Revenue growth will be backed by increasing capacity from new facilities which captures increasing demand.

• Challenges faced are inflationary impact on staff costs, rentals and other operating expenses and start-up costs of newly commissioned hospitals. Mitigation plans include an improved operating leverage (especially from improved margins of the hospitals opened in 2012-2014), increased mix of higher revenue intensity cases and price adjustments.

Catalysts

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

Risks

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

Forecasts

• Unchanged for now. Pending update from the management.

Rating

SELL , TP: RM4.16

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 reputationalmedical practitioners.

Valuation

• Reiterate SELL with unchanged SOP-derived TP of RM4.16 (see Figure #6) as share price has run ahead of fundamentals.

Source: Hong Leong Investment Bank Research - 27 Feb 2015