INVESTMENT HIGHLIGHTS

• 4QFY18’s normalised earnings came in at RM341.5m, recovered from a loss in previous quarter

• Contribution from the newly opened and acquired hospitals led to the recovery during the quarter

• Full year FY18 normalised earnings of RM1,027.6m came in better than ours and consensus expectations

• Positive contribution from Fortis on consolidation

• Maintain BUY with a revised TP of RM6.57 per share

Above expectations. IHH Healthcare Bhd (IHH) has reported 4QFY18 earnings of RM710.7m, a recovery from a loss of RM104.1m in the previous quarter. Nonetheless, excluding the exceptional items, normalised earnings for the quarter came in at RM341.5m. This brings the group’s full year FY18 normalised earnings to RM1,027.6m which is above our and consensus’ full-year FY18 earnings estimates.

Newly open and acquired hospitals lifted core performance. The 4QFY18 revenue and EBITDA grew by +9.7%yoy and +17.6%yoy respectively despite the adverse impact caused by a stronger Ringgit. Nonetheless, excluding this, revenue and EBITDA rose strongly by +28.0%yoy and +33.0%yoy respectively. This was mainly due to the contribution from: (i) continued ramp up of Gleneagles Hong Kong and Acibadem Altunizade and; (ii) newly acquired Amanjaya Specialist Centre and Fortis Healthcare. Overall, operational statistics in terms of revenue intensity per inpatient has been growing at three of its home markets except for India as Fortis’ current revenue intensity is lower than IHH’s existing operation in India.

Acquired control over Fortis with 31.1% stake. IHH has become the controlling shareholder of Fortis Healthcare after acquiring 31.1% stake for RM2.3b in November 2018. With a board representative of five members (out of eight), IHH is deemed to have control over the strategic direction of Fortis. Coupled with the recent appointment of a new CEO and CFO, we are confident that the new leadership is able to turnaround Fortis’ performance in the medium term.

Source: MIDF Research - 28 Feb 2019