IHH’s 1Q19 revenue and core net profit grew by 28% and 56% yoy respectively. The results were broadly within expectations but we trim our earnings estimates by 3-6%, mainly to account for the impact of the adoption of MFRS16. We believe that IHH should continue to deliver stronger earnings moving forward, underpinned by organic growth from existing operations, narrowing losses from GHK, and improvement in Fortis’ profitability. We maintain our BUY call on IHH with a lower TP of RM6.40.

Solid Performance

1Q19 revenue grew by 28% yoy, mainly fuelled by: i) organic growth from existing operations, ii) continuous ramp-up of Gleneagles Hong Kong (GHK) and Acibadem Altunizade, iii) contributions from the newly-acquired Amanjaya specialist centre and iv) contributions from Fortis Healthcare. Similarly, EBITDA grew 34% yoy due to the positive growth across all home markets. Of the total 34% yoy growth in EBITDA, 20% growth was derived from operations and 14% was due to the adoption of MFRS16.

Operational Metrics Remain Healthy

Inpatient admissions were high for India (due to the inclusion of Fortis) and Malaysia operations, but lower for operations in Singapore and Acibadem. Despite reporting negative growth in inpatient admissions, both Singapore and Acibadem’s revenue per inpatient admission grew by 7% and 27% yoy respectively, mainly due to more complex cases taken and increase in foreign patients. The price adjustment for patients on private insurance and out-of-pocket patients had also contributed to Acibadem’s growth in revenue per inpatient. Overall, revenue per inpatient admission was positive for its key markets in 1Q19, with the exception of India which contracted by 15% yoy, due to the inclusion of Fortis which has lower revenue intensity as compared to IHH’s existing operations in India.

Strong Earnings Growth Despite the Adoption of MFRS16

IHH’s 1Q19 core net profit grew 56% yoy to RM188.4m, driven by stronger operational performance, despite impacted by i) the adoption of MFRS16 which reduced the group’s core net profit by RM11.6m or a 10% drag, and ii) the one-off higher tax expenses on the dividends received from RHT at Fortis. The results were broadly in line with expectations, making up for 17% and 18% of our and consensus’ full-year estimates respectively.

Source: Affin Hwang Research - 31 May 2019