AmInvestment retains Neutral on healthcare sector

AmInvestment has a fair value of RM7.20 a share for IHH Healthcare Bhd

KUALA LUMPUR: AmInvestment Bank Research remains Neutral on the healthcare sector with Hold calls for the two companies under its coverage.

It has a fair value of RM7.20 a share for IHH Healthcare Bhd and RM4.60 for KPJ Healthcare Bhd. Earnings were in line with expectations. 

It said on Tuesday IHH’s core earnings rose 5% in 1Q on the back of a 24% topline expansion. 

IHH's earnings before interest, tax, depreciation and amortisation (EBITDA) improved 22% with margin sustained at 25%. The group saw strong inpatient volume growth in Singapore (11%) and Acibadem (17%). 

“Looking ahead, we expect IHH’s EBITDA margin to be sustainable at 25%. This is on the back of strong 28% EBITDA margin for its matured hospitals as the newer ones ramp up. 

“All in, we are forecasting 15% earnings growth this year (three-year CAGR: 18%) on the back of sustainable demand across its key markets,” it said.

AmInvestment said as for KPJ, after two quarters of falling patients, the group saw in-patient volume return in 1Q with a growth of 4%. Quarterly volume growth was a strong 7.5%. 

While topline grew 5%, earnings growth flattish due partly to higher interest costs. 

EBITDA margin was sustained at 12%. Net gearing is manageable at 0.7 times. KPJ Pahang (190 beds) is slated for opening in mid-2016; it is expected to be EBITDA positive within 12-18 months as it is a relocation of existing capacity from KPJ Kuantan. 

“Overall, we expect earnings to grow 4% this year (3-year CAGR: 4%) as we factor in higher interest costs with another RM350mil sukuk expected to be issued this year,” it said. 

AmInvestment said overall, it remains upbeat on the healthcare sector given the resilient demand for healthcare. Frost & Sullivan is expecting CAGR of 11% for the healthcare sector until 2020. 

“Last year, topline for IHH and KPJ grew 15% and 8%, respectively. We expect steady demand to continue to drive earnings for the two companies in the second half. 

“We believe patient volume will be stronger vis-à-vis last year when volume was impacted by GST – although 3Q numbers might be slightly muted. 

“All in, we are expecting a better year for both KPJ and IHH on sustained margins, steady patient volume growth and price reversions to mitigate any price increases,” it said.