INVESTMENT HIGHLIGHTS

• 1HFY19’s normalised earnings rose by +13.6%yoy RM428.4m, within ours and consensus’ expectation

• Acibadem’s forex exchange loss on non-Lira borrowings has significantly narrowed

• Recently-acquired Fortis has reported operating profit before tax for the second consecutive quarter

• Maintain BUY with an unchanged TP of RM6.66 per share

Within expectations. IHH Healthcare Bhd (IHH) has reported 2QFY19 earnings of RM184.9m (+12.0%yoy) and this brings its cumulative 1HFY19 earning to RM274.4m (+23.4%yoy). Excluding the exceptional items such as foreign exchange loss on its borrowings, 1HFY19 normalised earnings came in at RM428.4m (+13.6%yoy). This accounts for 41.2% and 40.7% of ours and consensus full year FY19 earnings estimates respectively. Despite this, we view that the earnings came in within our expectation as we expect much stronger earnings performance in the 2HFY19. This is mainly underpinned by the: (i) growth at Singapore and Malaysia’s operations and; (ii) ongoing efforts to address near term challenges mainly at its Turkey and India’s operations.

Strong performance from the Singapore and Malaysia. Parkway Pantai’s Singaporean and Malaysian hospitals have been the group most cashflow-generative operation. Historically, these two markets contributed about 60.0% of the group’s EBITDA. In 2QFY19, both markets continue to support the group’s overall performance with revenue and EBITDA growth of +13.6%yoy and +11.3%yoy respectively. The inpatient admission grew by +7.3%yoy to 71,923 patients during the quarter. Meanwhile, revenue intensity per inpatient for both markets rose by +3.3%yoy and +6.4%yoy respectively. The strong performance was due to the: (i) higher foreign patient mainly coming from Indonesia, China, Middle East, and Bangladesh; and (ii) acquisition of Amanjaya Hospital in October 2018.

Ongoing efforts to address Acibadem’s currency volatility.

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 converted its exposure of USD250.0m from the total of USD670.0m into equity stake in April 2019.

Source: MIDF Research - 3 Sept 2019