INVESTMENT HIGHLIGHTS

• 1QFY19’s normalised earnings came in at RM188.4m, within ours and consensus’ expectation

• In mitigating foreign exchange losses, IHH targets to further pare down Acibadem’s non-Lira borrowings

• Recently-acquired Fortis has reported an operating profit for the first time thanks to a discipline turnaround plan

• Maintain BUY with a revised TP of RM6.66 per share

Within expectations. IHH Healthcare Bhd (IHH) has reported 1QFY19 earnings of RM89.5m. Nonetheless, excluding the exceptional items such as foreign exchange loss on its borrowings, normalised earnings for the quarter came in at RM188.4m. This is within our and consensus’ full-year FY19 earnings estimates at 18.1% and 17.3% respectively. Against the corresponding quarter in the last financial year, revenue and normalised earnings rose by +27.6%yoy and +56.3%yoy driven by a solid operational performance. We expect IHH will continue to deliver strong earnings going forward underpinned by the: (i) ongoing efforts to address near term challenges and; (ii) organic growth at its home markets especially Singapore and Malaysia.

Ongoing efforts to address near term challenges. Currency volatility poses problems to Acibadem’s operation in Turkey. In order to mitigate the foreign exchange loss on its non-Lira borrowings, it has pared down its exposure by USD250.0m to USD400.0m. By 2020, it targets to reduce the balance further by USD50.0m to USD100.0m. Meanwhile, the recently-acquired Fortis has reported an operating profit for the first time thanks to a discipline turnaround plan by the new management. This include: (i) improving the operational efficiencies and operating leverage; (ii) renegotiating some of its credit lines and; (iii) reducing procurement costs via leveraging IHH’s global procurement pricing arrangement with its vendors.

Solid performance from the Singapore and Malaysia markets. While inpatient admissions for Singapore market drop marginally by - 1.2%yoy to 19,118, its revenue intensity grew by +7.0%yoy to RM31,772 per patient due to: (i) increased in average length of stay per patient and; (ii) higher mix of more complex cases.

Source: MIDF Research - 31 May 2019