News/ Comments

• Turkey and Macedonia have both declared a state of emergency for their own respective reasons. Acibadem Saglik Hizmetleri Ve Ticaret AS, IHH’s 59.6% owned entity has a significant presence in Turkey (its home market) and an established footprint nearby South-Eastern Europe.

• To recap, Acibadem group has 22 hospitals in total, with 18 hospitals in Turkey, 1 in Macedonia and recently acquired 3 in Bulgaria.

• On Turkey, we are neutral on the failed coup de’ tat. We believe that any political risk has been nullified as both government and opposition leaders are united in their efforts to thwart any further coup attempts.

• Challenges in the near term draw from the subsequent effects on medical tourism. It is estimated that circa 15% of Acibadem’s revenue comes from medical tourists. We opine that the heightened security presence post failed coup attempt could restore more confidence to visit Turkey. Recall that the threat of terrorism is more profound in Turkey due to its proximity to Syria. Turkey declared a state of emergency for 3 months after the coup attempt.

• On Macedonia, torrential rains have caused flooding and landslides near the capital, Skopje. Yesterday the government has declared a state of emergency for two weeks. With regards to the financial impact to Acibadem, we are neutral on this catastrophe as the group operates the one Sistina Hospital in Skopje.

• We remain Neutral on these events as Turkey’s fundamentals are still intact, whilst Macedonia’s impact to Acibadem’s bottom-line is negligible.

Catalysts

• Global population growth;

• Ageing demographics;

• More affluent community;

• Proliferation of medical tourism; and

• Higher healthcare demand.

Risks

• Regulatory / Political / FOREX risks;

• Higher staff cost; and

• Inability to unlock synergies of the enlarged entity.

Forecasts

• Unchanged.

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 unchanged SOP-derived TP of RM6.23 (see Figure #1).

Source: Hong Leong Investment Bank Research - 10 Aug 2016