Period  2Q14/1H14

Actual vs. Expectations The core 1H14 net profit of RM363.9m (+24.7% YoY) came in within expectations, at 48% of our and consensus full-year forecasts.

Dividends  No dividend was declared during the quarter.

Key Result Highlights QoQ, the 2Q14 revenue and EBITDA grew 6% and 12%, respectively, underpinned by organic growth of existing hospitals specifically higher inpatient admissions and revenue intensity across the board as well as the strong ramp up of Acibadem Atakent and the opening of Pantai Manjung in May 14. This brings core net profit to RM192m (+11%) thanks to double-digit EBITDA growth, which was marginally offset by the incremental depreciation and financial costs for Acibadem Atakent Hospital and Pantai Hospital Manjung following their completion.

 YoY 1H14, revenue came in at 10% growth to RM3.6bn, while EBITDA grew 14% to RM925m and core PATMI excluding exceptional items improved by 24.7% to RM363m. The solid results were driven by growth in patient volume, revenue intensity of existing operations and opening of the. Acibadem Atakent Hospital and Pantai Hospital Manjung in January 2014 and May 2014, respectively. In spite of the weakening Turkish lira, core earnings were only minimally affected by forex translation thanks to the strengthening Singapore dollars. Balance sheet further strengthened whereby net gearing improve to 0.10x as at the end of June 2014, from 0.12x as at December 2013.

Outlook  Growth driver in the next five years will come from the following: (i) In Singapore, the gradual ramp up of Mount Elizabeth Novena of which 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 Kuala Lumpur, Pantai Hospital Kuala Lumpur, Pantai Hospital Klang and Pantai Hospital Ayer Keroh. Greenfield projects meanwhile, namely Gleneagles Kota Kinabalu and Gleneagles Medini will add an estimated 500 beds by end 2014 to end 2016, (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 Maintain Underperform with an unchanged SoP target price of RM4.20. The stock is currently trading at PERs of 52x for FY14E and 47x for FY15E, which appear rich as compared to its average net profit growth of 13.5% p.a. over FY14E and FY15E.

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

Source: Kenanga