AmInvestment has a fair value of RM7.20 a share for IHH Healthcare Bhd
KUALA LUMPUR: CIMB Equities Research is maintaining its Add for IHH Healthcare with higher sum-of-parts based target price of RM6.99 from the earlier RM6.84. Its last traded price was RM6.
It said on Thursday IHH reported 2Q17 profit after tax and minority interest (PATMI) of RM317mil, above its/consensus expectations.
“Excluding RM230mil of exceptional items (mainly from gains on the disposal of its Apollo stake), it would have been a big miss, which we attribute to higher gestation costs in Hong Kong (HK), additional financing expenses and unfavourable forex translation effects,” it said.
The 2Q17 earnings before interest, tax, depreciation and amortisation (EBITDA) of RM536mil formed 48% of its FY17 forecasts.
CIMB Research pointed out IHH’s major operating markets like Singapore and Malaysia continued to exhibit resilient operational performance in 2Q17, growing 10% and 15% on-year, respectively, for topline, and 12% and 20% on-year, respectively, at the EBITDA level.
India was a slight disappointment with 2Q17 EBITDA dropping 42% on-year due to the recruitment of new consultants, despite revenue improving 31% on-year.
“We do not see this as a major concern given its relatively small earnings contribution and longer-term story.
“A big reason why we are bullish on IHH is because we believe in management's ability to execute in Hong Kong,” it said.
Recall that GHK opened only in March 2017 but it is already seeing positive revenue contribution and narrowing EBITDA losses to RM72mil in 2Q17 (1Q: RM85mil).
“Management also shared that average sales prices (ASPs) in GHK are very close to Singapore levels, which is impressive given that GHK just opened. We expect IHH to achieve EBITDA breakeven by FY18,” it said.
Both inpatient volume and average inpatient revenue for Singapore were up 1.3% and 8.7% on-year, respectively, thanks to stronger operating leverage at Novena, which is at 65% occupancy level on average and due to open one more ward (30 beds) in 2H17.
Management sees an uptick in Indonesian patients for both Singapore (+15% on-year YTD) and Malaysia (mainly from Sumatra).
The group’s Acibadem's headline numbers (2Q17 EBITDA of RM145mil, -9% on-year) were perhaps the biggest negative surprise this quarter but this was mostly due to forex translation.
Core revenue (+26% on-year) and EBITDA (+4% on-year) numbers on a constant currency basis were actually much better. An even bigger positive is the strong ramp-up in the new Acibadem Taksim and Altunizade (opened in March 17) hospitals, with inpatient volumes up 40.4% on-year and average inpatient revenue up 4.0% on-year.
“Maintain Add on this established hospital operator. As we tweak our forecasts for higher financing and depreciation costs, our FY17-19F EPS fall by 2%-8%.
“Our SOP-based TP is now higher upon factoring in the proceeds from the Apollo stake divestment; maintain Add.
“Share price could stay range-bound on gestation for new hospitals, but we still like IHH for its established geographical presence in key populous countries, proven track record and strong brand equity,” said CIMB Research.
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