Period  3Q13/9M13

Actual vs. Expectations The core 9M13 net profit of RM460.4m (+45% YoY) came in within expectations at 70% of our and consensus full-year forecasts. We consider the results as within our expectation considering that 3Q is seasonally a weaker quarter.

Dividends  No dividend was declared during the quarter.

Key Result Highlights QoQ, the 3Q13 revenue came in flat at RM1.6b due largely to seasonal factor mentioned above with lower inpatient admissions resulting from the summer months in Turkey, the Ramadan month and Hungry Ghost festival in Malaysia and Singapore. However, core net profit reflected the escalating cost pressures as 3Q13 EBITDA dipped 6% while PATMI (stripping out exceptional items) decreased by 27% as 2Q13 PATMI had been previously boosted by a one-off RM22m tax credit related to a prior year’s tax item.

 YoY, 9M13 topline revenue grew 18% (excluding sales of medical suites) due to organic growth of existing operations across the board as well as ramping up contribution from new hospitals namely Acibadem Bodrum, Ankara Hospitals and Mount Elizabeth Novena. Revenue growth was seen across the board. In Singapore, inpatient admissions and average revenue per inpatient increased by 7.5% and 5.0%, respectively. In Malaysia, inpatient admissions and average revenue per inpatient increased by 5.6% and 7.1%, respectively. In Acibadem, inpatient admission increase by 7%.

 YoY, the 9M13 core net profit rose 45% to RM460.4m thanks to double-digit EBITDA growth, savings in finance cost from the repayment of loan for the Parkway and Acibadem acquisition from the 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 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 despite 3Q13 Indonesian inpatient rose 9%.

 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 singlebed 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 for 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 UNDERPERFORM and our SOP target price of

RM4.04. The stock is currently trading at rich 48.9x and 40.7x on FY13 and FY14 earnings compared to its average net profit growth of 35% p.a. over the next two years.

Risks to Our Call Earlier-than-expected commercial operation of its greenfield and brownfield projects.

Source: Kenanga