Period  1Q14

Actual vs. Expectations The core 1Q14 net profit of RM172m (+30% YoY) came in within expectations at 23% of our and consensus full-year forecasts.

Dividends  No dividend was declared during the quarter.

Key Result Highlights YoY, the 1Q14 revenue and EBITDA grew 8% and 11%, respectively, underpinned by organic growth of existing hospitals specifically higher inpatient admissions and revenue intensity across the board as well as the opening of Acibadem Atakent Hospital in Jan 2014. This brings core net profit to RM172m thanks to double-digit EBITDA growth, which was marginally offset by the incremental depreciation cost and financing cost relating to the new Acibadem Atakent Hospital that were recognised on the income statement upon the completion of construction. (For a more detailed explanation, please refer to the table overleaf.)

 Mount Elizabeth Novena Hospital, Acibadem Ankara Hospital and Acibadem Bodrum Hospital continued to ramp up their operations since starting in FY2012 compared to significant startup costs incurred in Q1 2013. Overall, IHH managed to maintain its 1Q14 EBITDA margin of 25%. This was driven by its operating leverage reaped from higher inpatient volumes as well as the group’s expanding operations despite pressures from staff cost, rentals and other operating expenses.

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 three 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 end 2014 to mid 2015. (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.

Change to Forecasts No changes to our FY14 and FY15 forecasts.

Rating & Valuation Our target price is raised from RM3.86 to RM4.20 as we roll forward our base valuation from FY14E to FY15E. Maintain MARKET PERFORM.

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

Source: Kenanga