Results

• FY15 turnover of RM8.5bn was translated into core net profit of RM899.2m, accounting for 80% and 97% of ours and consensus full year estimates, respectively. This was below our expectations, but within consensus estimates.

Deviations

• Due to higher than expected finance costs resulting from acquisition of Global Hospitals and depreciation expenses from the newly opened Taksim Hospital and Gleneagles Medini.

Dividend

• Proposed a first and final single tier cash dividend of 3 sen per share to be approved at the upcoming AGM (FY14: 3 sen).

Highlights

• Higher average revenue per inpatient admission: Due to better case mix (more complex cases) and price hike, average revenue per inpatient admission grew healthily YoY in all three home markets, with SG, MY and Turkey gaining 1.0%, 9.7% and 10.4%, respectively.

• Mixed inpatient admission volume: Yoy growth was a mixed bag, with MY being the only one recording negative growth of 3.2%. Not surprising as Malaysia is currently affected by higher cost of living due to GST implementation. SG and Turkey grew 6.6% and 0.7%, respectively. SG was able to record a higher growth yoy as number of local patients increased. Management stated that there was a significant hike in number of outpatient admission.

• For FY15, SG still contributed the largest to IHH’s earnings (51%), followed by MY of 24%. Comparing to FY14, SG and MY contributed 39% and 29%, respectively.

• We believe performance of Turkey would be slower in FY16 due to the relatively weak Turkish Lira coupled with the geopolitical issues surrounding the country. Nevertheless, we expect this to be offset by stronger SGD.

• We look forward to its expansion plans particularly in Myanmar (Parkway Yangon), Western China (ParkwayHealth Chengdu Hospital) and Gleneagles Hong Kong Hospital which will capture the demand for premium healthcare services.

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

• Tweaked model post final results release. In turn, FY16-FY17 was revised lower by 15%.

Rating

HOLD TP: RM6.23

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

Reiterate our HOLD call and slightly lower SOP-derived TP of RM6.23 (see Figure #6).

Source: Hong Leong Investment Bank Research - 26 Feb 2016