IHH’s 9MFY14 earnings met our expectation but were above consensus’at  75.7%  and  78.3%  respectively.  Maintain  NEUTRAL  with  SOP-based TP of MYR4.63  (5.7% downside).  We make no changes to  our earnings forecasts.  The  in-line  profit  was mainly  attributed  to: i)  an  increase  in complex cases and ii)  an  increase in inpatient admissions. We expect better earnings in 4Q as it is a traditionally stronger quarter for IHH.

Within expectations. IHH’s 9M14 net profit came in line at MYR608.1m, making  up  75.7%  of  our  and  78.3%  of  consensus’  estimates.  3Q14 revenue declined  by 4.3% QoQ  to MYR1.78bn (from MYR1.87bn  in 2Q)as  it  was  the  seasonally  slower  quarter  due  to  the  festive  season  in Malaysia, Singapore and the  summer season in Turkey.  However, 9M14 YoY  revenue  and core profit grew by 8.6% and 23.4% respectively. This was mainly attributable to: i) the ramp up in operation at Mount Elizabeth Novena in Singapore;  ii)  a  surge  in  the  number of inpatient admissions by 5.0%; and iii) an increase in revenue intensities per patient across the group.  We  expect  IHH  to  perform  better  in  4Q  as  it  is  traditionally  a strong quarter for the group due to the upcoming winter months. 

Going forward.  Management shared that it will continue to ramp up its operations in Mount Elizabeth Novena in Singapore through the  opening of new wards and specialisation (Radiation oncology) by the end of this year.  Additionally,  management  also  shared  the  progress  of  its expansion  across  all  three  markets,  which  are  all  on track to meet the respective  completion  dates,  which  in  turn  should  drive  revenue  and earnings in the near future.

Risks  include:  i)  rising  staff  costs  and  other  inflationary  pressures;  ii) lower revenue intensity per patient; iii) foreign exchange rate volatility. 

Forecasts.  We  make  no  changes  to  our  earnings  forecasts  at  this juncture as we believe IHH is on track  to meet our full-year forecast. W e are introducing our FY16 earnings forecast. 

Investment case.  Following the results  announcement, we maintain our FY14-15  earnings forecasts, TP of MYR4.63  and NEUTRAL call. IHH is currently trading at  33.6x  FY15 P/E and 19.1x FY15 EV/EBITDA  vis-avis  its  peers’  13.6-35.5x  FY15  P/E  and  14.2-24.2x  FY15  EV/EBITDA, and  we  believe  that  IHH  will  likely  continue  to  trade  at  a  premium. However, at the current price, we believe that recent developments have been reflected, hence, limiting the upside for now.

Source: RHB