Period  4Q13/FY13

Actual vs. Expectations The core FY13 net profit of RM648.6m (+5% YoY) came in within our and consensus full-year forecasts.

Dividends  A first and final single tier dividend of 2 sen was proposed. This is IHH’s maiden dividend payout following the just announced dividend policy of not less than 20% of the Group’s profits after tax and minority interests (PATAMI), excluding exceptional items.

Key Results Highlights QoQ, the 4Q13 revenue rose 6.5% to RM1.8b due largely to increased volume intensity and the ramping up of new hospitals (refer to summary results table below for further details). Excluding the effects of recognition of the medical suites sale and revaluation gains on investment properties; revenue and EBITDA grew 6% and 15%, respectively. This brings core net profit to RM188m (+36% QoQ) due to double-digit EBITDA growth, recapitalisation of Acibadem, and further boosted by the recognition of investment tax allowances of RM22.9m.

 YoY, FY13 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. In Singapore, inpatient admissions and average revenue per inpatient increased by 7.3% and 5.7%, respectively. In Malaysia, inpatient admissions and average revenue per inpatient increased by 7.4% and 6.5%, respectively.

 YoY, the FY13 core net profit rose 5% to RM648m thanks to double-digit EBITDA growth, savings in finance cost from the repayment of loan for the Parkway and Acibadem acquisitions from the IPO proceeds and writeback of RM22m of prior years’ tax recoveries but offset by incremental depreciation and finance cost relating to new hospitals. (For a more detailed explanation, please refer to the table overleaf.)

Outlook  Growth driver in the next five years will come from the following: (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 for two hospitals, Acibadem Sistina Skopje Clinical Hospital, Acibadem Bodrum and Acibadem Maslak Hospital while Acibadem Altunizade is a greenfield development.

Forecasts  We are lowering our FY14E net profit by 7% to take into account higher operating costs in both Parkway Singapore and Malaysia. We also introduce our FY15E numbers.

Rating Correspondingly our SOPR derived target price is reduced from RM4.04 to RM3.86. With a total return of 3%, we upgrade our UNDERPERFORM call to MARKET PERFORM.

Risks to Our Call Delays in its greenfield and brownfield projects.

Source: Kenanga