Period     1QFY13

Actual vs. Expectations    The core 1QFY13 net profit of RM133.4m (+17% yoy) came in at 20% of ours and 18% of the consensus full-year net profit forecast.  We consider the results to be within our expectations as we expect earnings to rise higher in the subsequent quarters as the utilisation rate improves. 

Excluding ParkwayLife REIT (PLife REIT) and the exceptional items, the 1QFY13 PATAMI rose 18% to RM120m, accounting for 18% of our full-year net profit forecast.

Dividends    No dividend was declared during the quarter.

Key Result Highlights    YoY, the 1QFY13 revenue rose 29% to RM1.6b due largely to the adoption of MFRS10 effective 1 Jan 2013, which resulted in its 35.8%-owned PLife REIT being reclassified as a  subsidiary instead of an associate and Khubchandani Hospital being reclassified from a subsidiary to a joint venture entity. Elsewhere, the revenue growth came across the board. There was a full 3-month consolidation of Acibadem compared to two months in 1QFY12. Parkway Pantai in Singapore has an inpatient admission that rose 8% and a 3% increase  in its average revenue per inpatient in Singapore. In Malaysia, the inpatient admission grew 2% and average revenue per inpatient rose 10%. As for IMU Health, its earnings were higher due to fee income from its medical and nursing programmes. 

YoY, the 1QFY13 EBITDA rose 21% thanks to contributions across the board. However, the increase in cost pressure eroded its margins slightly to 24% as compared to 26% in 1QFY12. Excluding PLife REIT, the new hospitals’ EBITDA margin in 1QFY13 remained stable at 23% compared to 24% in 1QFY12. The EBITDA loss at Novena fell to RM3m from RM15.6m in 1QFY112 and RM16.4m in 4QFY12 due to a ramp-up in revenues that helped to offset overheads. This is a further indication that Novena is on track to achieve a breakeven level sometime in FY13. 

YoY, the 1QFY13 PATMI (excluding EI) rose 17% driven by a solid EBITDA growth as well as savings in finance cost from the repayment of Parkway and Acibadem acquisition loans via the utilisation of the IPO proceeds. 

Net gearing as at 31 March 2013  rose to 11% from 5% following the consolidation of PLife REIT. 

Outlook    The IHH growth driver in the next five years will come from the following drivers:  (1) In Singapore, the first phase of Mount Elizabeth  Novena Hospital comprising 150 of 333 beds (all single-bed rooms) capacity and 13 operating theatres has commenced operations in July 2012. (2) In Malaysia, PPL is currently undertaking expansion projects in four hospitals, Gleneagles Medical Centre Penang, Pantai Hospital Kuala Lumpur, Pantai Hospital Klang and Gleneagles. Greenfield projects, namely Gleneagles Kota Kinabalu, Pantai Hospital Manjung and Gleneagles Medini will add an estimated 500 beds to its network by 2014. (3) In Turkey, Acibadem is currently undertaking expansion projects in two hospitals, Acibadem Sistina Skopje Clinical Hospital and Acibadem Maslak Hospital. The two greenfield development projects are Acibadem Ankara and Bodrum Hospitals.  

Forecasts    No changes to our FY13 and FY14 forecasts. 

Rating         Maintain MARKET PERFORM

Valuation     We have raised our SOP value to RM4.04 from RM3.51 previously as we rolled forward our valuation base  year from FY13 to FY14 and included PLife REIT net debt in our full SOP value calculation. 

Risks    Slower than expected commercial operation of its greenfield and brownfield projects. 

Source: Kenanga