Period  2Q13/1H13

Actual vs. Expectations  The core 1H13 net profit of RM322m (+38% yoy) came in within expectations, at 46-48% of our and consensus full-year forecasts.

Dividends  No dividend was declared during the quarter.

Key Result Highlights  QoQ, the 2Q13 revenue rose 3.4% to RM1.7b due largely to higher inpatient admissions and also revenue from newly opened hospitals. Inpatient admission in Singapore and Malaysia grew 3.3% and 4.9% respectively. In Acibadem, revenue contribution came from newly opened Bodrum and Ankara Hospitals and a 6% increase in average revenue per inpatient. However, core net profit grew faster than turnover due to lower effective tax rate arising from a one-off RM22m tax credit recognised related to prior years’ tax recoveries catapulting 2Q13 net profit higher by 41% to RM188m. Interestingly Mount Elizabeth Novena achieved positive EBITDA, which is in line with our expectation.

 YoY, 1H13 topline grew 20% excluding sales of medical suites at Mount Elizabeth Novena in 1H12 and 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. Revenue growth was seen across the board. There was a full 6-month consolidation of Acibadem compared to five months in 1H12. In Singapore inpatient admissions and average revenue per inpatient increased by 7.7% and 4.2%, respectively, while in Malaysia, these numbers increased by 4.1% and 6.6%.

 YoY, the 1H13 core net profit rose 38% to RM322m thanks to double-digit EBITDA growth, savings in finance cost from the repayment of Parkway and Acibadem acquisition loans from the utilisation of IPO proceeds and write-back of RM22m of prior years’ tax upon successful recovery from the authorities but offset by incremental depreciation and finance cost relating to new hospitals. (For a more detailed explanation, please refer to the table overleaf.)

Outlook  Over the short to medium term, IHH Singapore could potentially be impacted by the weakening of the Rupiah and Ringgit against the Singapore dollar since medical tourists from Indonesia and Malaysia accounts for an estimated 18% and 4% of IHH Parkway Singapore’s total patient volume.

 Growth driver in the next five years will come from the following drivers:  (i) In Singapore, the first phase of Mount Elizabeth Novena Hospital comprising 150 (of total 333) beds (all single-bed rooms) and 13 operating theatres, which have already commenced operations in July 2012. (ii) 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 meanwhile, namely Gleneagles Kota Kinabalu, Pantai Hospital Manjung and Gleneagles Medini will add an estimated 500 beds by 2014. (iii) In Turkey, Acibadem is currently undertaking expansion projects in two hospitals, Acibadem Sistina Skopje Clinical Hospital, Acibadem Bodrum and Acibadem Maslak Hospital while Acibadem Altunizade is a greenfield development.

Forecasts  No changes to our FY13 and FY14 forecasts.

Rating  Maintain MARKET PERFORM and our SOP target price of RM4.04

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

Source: Kenanga