During a recent visit to IHH following the release of its 1QFY13 results, we gather that its near-term focus is to increase visitations at its newly opened  hospitals.  We  also  find  some  comfort  in  Management’s confirmation that its hospitals in Turkey are operating as usual despite the ongoing civil unrest. Maintain NEUTRAL given the stock’s relatively rich  valuation.  We  bump  up  our  FV  to  MYR3.87  from  MYR3.69 previously, as we roll forward our SOP valuation to FY14. 

- Asset-light  model  a  new  approach.  Management  reaffirmed  that  it  is looking  to  implement  an  asset-light  model  going  forward,  using  its  Kota Kinabalu  and  Manjung  new  greenfield  projects  as  a  test  bed.  Both  new hospitals  are  under  long-term  leasing  arrangements.  Should  this approach  prove  successful,  we  foresee  IHH’s  future  expansion  in Malaysia  following  similar  arrangements,  which  would  then  require significantly lower upfront capital outlay. Currently, the Group has capital 
commitments  of  over  MYR750m  within  the  country.  Over  the  longer term,  we  believe  there  is  a  possibility  that  IHH  could  recapitalize  its balance sheet by potentially setting up a REIT vehicle.

-  Focus  on  turning  around  Novena.  Moving  south  to  its  Singapore operations,  Management  reaffirmed  that  its  immediate  focus  is  to improve  operations  at  its  Mount  Elizabeth  Novena  Hospital.  The SGD2bn  hospital  has  since  operationalized  100  beds  and  is  currently breaking even at EBITDA level vis-à-vis 1QFY13’s reported EBITDA loss of  MYR3.0m.  We  expect  this  improvement  to  be  reflected  in  its  2Q13 earnings.  

- Business as usual in Turkey. Management confirmed that businesses at  all  its  15  hospitals  in  Istanbul  are  going  on  as  usual  despite  the ongoing  riots  in  the  city. None of IHH’s hospitals are located in the affected  areas,  with  the  closest  being  some  5km  away  from  Taksim Square,  which  came  under  fire.  Nonetheless,  we  caution  investors  that the  riot  could  potentially  spread  to  other  areas  within  Istanbul  as  the Turkish  riot  police  continue  to  stem  the  ongoing  protest  against  Prime Minister Tayyip Erdogan.

Source: RHB