Results

• Inline – FY17 revenue of RM11.14bn translated into core earnings of RM595.3m, making up 99.0% of HLIB and 89.7% of consensus expectations. In deriving our core earnings, we have adjusted for EIs amounting to a net sum of RM374.7m.

Dividend

• Declared a dividend of 3 sen/ share for FY17 yielding 0.5%.

Highlights

• YTD: Revenue grew 11.2% yoy to RM11.14bn attributed to organic growth of existing operations, contributions from hospitals opened in 2017 and acquisitions in 2016. EBITDA was flattish at RM2.28bn. The stronger performance in Malaysia and Turkey offset by the pre-operating and startup costs from GHK. Core PATAMI declined by 31.3% to RM595.3m due to higher D&A, finance costs (+21%) and staff cost (+17%).
• Yoy: Revenue grew 9.6% yoy to RM2.9bn on the back of contributions from new hospitals and organic growth of existing operations across and continuous ramp up of hospitals opened in 2017. Consequently, EBITDA increased by 8.9% to RM615.7m. Core PATAMI declined by 18% due to incremental D&A expenses on completion of new hospitals and a higher overall cost structure as mentioned in the above.
• Qoq: Revenue grew 13% whilst core earnings grew 45.4% on the back of stronger performance from Acibadem (EBITDA +51% qoq).
• Inpatient admission yoy: Volume growth across all 34 home markets – SG, MY, TRY and IND grew 6.3%, 4.1%, 13.0% and 15.4%, driven by demand from local and foreign patients.
• Revenue per inpatient yoy: Growth in inpatient revenues across all 4 homes markets attributed to better case mix. (SG +6.2%, MY +4.3%, IND +0.5%, TRY+20.0%).
• GHK continues to ramp up at a healthy level. Losses have narrowed to RM65.3m from RM68.8m qoq. Outpatient volumes showed a growth of 15% mom, whilst Inpatient volumes showed a growth of 22% mom. Nonetheless, we still expect that GHK is still a year away from breaking even.
• Gleneagles Chengdu which will be completed in 4Q18 and is targeted to commence operations in 2019. Management guided for a more phased opening, with an initial 100 beds initially (out of 350). We expect higher operating costs in 2018 from PPL Asia to be driven by the opening of Chengdu partially offset by the ramp up in GHK.

Risks

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

Forecasts

• Unchanged as the results were inline.

Rating

• Whilst we like IHH for its exposure to key gateway markets, good management and strong reputation, earnings delivery in the near term will be hampered by higher pre-operational costs as the new hospitals take time to mature. Maintain HOLD.

Valuation

• We maintain our SOP-derived TP of RM6.07.

Source: Hong Leong Investment Bank Research - 28 Feb 2018