PublicInvest maintains neutral on IHH with TP of RM6.57

Malaysia's IHH Healthcare Bhd has made a proposed offer for Fortis worth US$1.3 billion, while smaller local rival Manipal Health Enterprises Pvt Ltd, has made an offer of about $1.2 billion.

KUALA LUMPUR: PublicInvest Research says it likes IHH Healthcare Bhd as a long-term horizon play due to its aggressive focus on establishing a larger network of hospitals in its new home markets.

However, the research adds remains cautious over slower earnings growth in the near-term due to operating challenges from new hospitals' gestation period. 

IHH posted 2QFY18 net profit of RM165.1mil, 48% less year-on-year, while first half 2018 net profit dropped 72% year-on-year to RM222.3mil. 

"Stripping off exceptional items, 1HFY18 core PATAMI increased by 31% YoY to RM377.0m
however, accounting for 62% and 42% of our and consensus’ FY18 estimates respectively.

"At topline level, IHH reported marginal growth of 1% YoY to RM5.51bn, supported by stable growth across its hospitals," said PublicInvest.

The research house said IHH's growth will continue to be drive by its key home markets. 

"Expansions of Pantai Hospital Kuala Lumpur and Acibadem Maslak Hospital are expected to complete this year, while construction of two greenfield projects, Gleneagles Chengdu and Gleneagles Shanghai are on track. 

"We expect IHH’s earnings to be impacted by these pre-operating and start-up costs, though should be slightly cushioned by its efforts to ramp-up patient volumes in existing hospitals as well as hospitals undergoing expansions."

IHH will also be focusing on restructuring and reducing its foreign currency debt burden to cushion the impact of the weakening of the Turkish Lira on Acibadem.

PublicInvest maintained its neutral call on IHH with an unchanged target price of RM6.57.