Period  3Q14/9M14

Actual vs. Expectations  9M14 core net profit of RM540.8m (+23% YoY) came in within expectations, at 70%-71% that of ours and consensus’ full-year forecasts.

Dividends  No dividend was declared during the quarter.

Key Result Highlights QoQ, the 3Q14 revenue and EBITDA fell 4% and 13%, respectively, due to a seasonally slow quarter in the summer months in Turkey and seasonality factor in Singapore and Malaysia. In Parkway, lower inpatient admissions in Malaysia were partially offset by higher revenue per inpatient admissions in Singapore and Malaysia. In Acibadem, due to the summer months in Turkey, inpatient admissions reduced 5.2% but partially offset by the 4.8% increase in the revenue per inpatient admissions. This brings core net profit to RM176.9m (-7.8%) due to the lower EBITDA which was offset partially by the 7% reduction in the net finance costs excluding the exchange gain and losses on non-TL borrowings.

 YoY 9M14, revenue came in at 9% growth to RM5.4b, while EBITDA grew 12% to RM1.4b and core PATMI excluding exceptional items improved by 23% to RM540.8m. 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. The EBITDA growth was also driven by the significant improvements in Mount Elizabeth Novena Hospital’s

EBITDA as the hospital ramps up its revenue with increasing patient volumes. Parkway Pantai achieved strong EBITDA growth despite the RM4.1m start-up EBITDA losses and RM3.7m pre-operating EBITDA losses incurred by Pantai Hospital Manjung and GHK, respectively.

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, (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, implying ~15% downside from here.

 The stock is currently trading at PERs of 53x for FY14E and 48x for FY15E, which appear rich as compared to its average net profit growth of 13.5% p.a. over FY14E and FY15E.

Risks  Delays in its greenfield and brownfield projects.

Source: Kenanga