KUALA LUMPUR: RHB Research Institute has upgraded IHH Healthcare Bhd
to “buy” from “neutral” with a higher target price of RM7.30 as it believed is best positioned to capture both domestic and medical tourism demand growth in the region.
It remains positive on IHH’s strong earnings growth outlook.
RHB Research said the opening of the 500-bed Gleneagles Hong Kong (GHK) by end-March should be a strong earnings growth catalyst for IHH, going forward.
“We have raised our FY17F-18 forecast earnings before interest, tax, depreciation and amortisation (Ebitda) by 2-4% respectively to reflect resilient inpatient revenue and demand growth,” RHB said.
The research house said its Ebitda forecasts was 5-7% higher in FY17-18 compared to consensus, as it had assumed a faster Ebitda breakeven for GHK, cost efficiency and margin accretion from maturing hospital assets.
It noted that IHH has demonstrated a solid track record in sustaining its EBITDA margin while still ramping up its new hospital assets.
“We forecast EBITDA margins to recover by 1.8 percentage points in FY17, despite assuming start-up losses from new hospitals – we expect other maturing hospital assets in IHH’s portfolio to offset the shortfall. We also expect IHH to generate 2-year (FY16-18F) EBITDA CAGR of 23%.
Year-to-date, IHH has underperformed the market by 12%.
“The stock was sold down in February post a weak set of 4Q16 results, due to additional provisions and start-up losses. Currently trading at 16x FY18F EV/Ebitda, the stock is at a 16% discount to its regional healthcare sector peer average.
“We are of the view that the discount is unjustified, given IHH’s larger regional footprint, leadership in its core markets, stronger 2-year Ebitda CAGR growth of 23% versus 17% for its peers and larger market capitalisation and liquidity,” RHB said.
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