1Q16 core net profit of RM238.3m (+5% YoY) came in within expectations, at 25% and 22% of our and consensus’ fullyear forecasts, respectively. No dividend was declared in this quarter which as expected. Maintain UNDERPERFORM. Our target price is RM5.59 based on SoP.

Key Result Highlights QoQ, 1Q16 revenue rose 8% due to intensities and continuous organic growth driving: (i) higher inpatient admission in Malaysia (+7.3%) and Singapore (+4.4%), and (ii) higher revenue per inpatient in Malaysia (+2%) and Singapore (+2%). The revenue was further boosted by Acibaden’s higher inpatient admissions (+14.3%). However, 1Q16 EBITDA came in flat due to the high base in 4Q15 following the recognition of revaluation gains of RM71.7m from PLife REIT’s investment properties. Stripping out exceptionals, 1Q16 PATAMI rose 11% to RM238.3m.

YoY, 1Q16 revenue grew 23% due to high intensities in patient volume and revenue of existing operations as well as the acquisition of Continental and Global Hospitals. Separately, high intensities in patient volume and revenue of existing operations and organic growth of existing operations, the ramping up of Acibadem Atakent Hospital and Pantai Hospital Manjung and the opening of Gleneagles Kota Kinabalu boosted the solid revenue growth. In Singapore, inpatient admissions and revenue per inpatient admission grew 10.9% and 0.3%, respectively. For Malaysia, inpatient admissions and revenue per inpatient admission grew 9.6% and 3.2%, respectively. This lifted EBITDA by 22%. As a result, core PATAMI grew 5% to RM238.3m.

Outlook. Growth driver in the next five years will come from the following:- (i) In Malaysia, PPL is currently undertaking expansion projects in four hospitals, namely Pantai Hospital Ayer Keroh (160 beds, completion in end 2017), Pantai Hospital Klang (80 beds), Pantai Kuala Lumpur (120 beds). Greenfield projects meanwhile, namely Gleneagles Medini (phase 1b, 160 medical suites), and (ii) in Turkey, Acibadem is currently undertaking expansion in Acibadem Sistina Skopje (81 beds) and Acibadem Maslak (200 beds, target completion 2017). The greenfield projects are Acibadem Altunizade (325 beds, target completion 2017) and Acibadem Kartal (120 beds, target completion 2018). Over at the international side, its operations in Chengdu and Hong Kong are expected to commence in 2H17.

Change to Forecasts. No changes to our FY16E and FY17E numbers.

Maintain UNDERPERFORM. Our target price is RM5.59 based on SoP. The stock is currently trading at PERs of 55x for FY16E and 49x for FY17E, which appear rich as compared to its average net profit growth prospects of 11% p.a. over FY16E and FY17E.

Source: Kenanga Research - 27 May 2016