IHH’s nine-month profit below expectations

The proposed acquisition of Prince Court Medical Centre could further increase bill intensity and volume from FY20F.

KUALA LUMPUR: IHH Healthcare’s core net profit for the nine months ended Sept 30 of RM630.8mil, down 8% year-on-year (y-o-y), was below expectations, CGS-CIMB Equities Research said.

“Without currency and MFRS 16 effects, third quarter (3Q19) EBITDA grew by 22% y-o-y, ” the research unit in its latest report.

Most markets saw higher revenue intensity and more foreign patients, while overall volume was weaker in Acibadem and GHK.

“Maintain add on valuation two standard deviation below mean and faster GHK-Fortis ramp-up, ” it added.

According to CGS-CIMB Research, IHH reported 3Q19 headline PATMI of RM236.3mil, reversing from 3Q18 net loss of RM104.1mil.

“Excluding one-off items of RM24.6m FV loss in foreign exchange (FX) interest rate swaps and RM83.4m FX gain on borrowings, 3Q19 underlying PATMI would have dropped 34.5% yoy to RM202.3m.

“9M19 core PATMI of RM630.8mil (minus 8.0% y-o-y) was a miss against our/ consensus at 65%/64% of full-year forecasts, on higher depreciation and financing costs (additional loans and refinancing into swaps).

“In constant currency terms and excluding MFRS 16 effects, 3Q19 revenue and EBITDA rose 36% and 22% y-o-y, respectively, ” it said.

CGS-CIMB Research said Malaysia saw exceptional patient load growth of 14.9% in 3Q19, which IHH attributed to organic efforts, more foreign patients and the acquisition of Amanjaya in October 2018.

The proposed acquisition of Prince Court Medical Centre could further increase bill intensity and volume from FY20F.

Singapore benefitted from medical tourism (mainly Indonesians) and a better case mix, resulting in EBITDA margin improvement to 32.9% (2Q19: 27.6%, 3Q18: 30.6%).

Inpatient admissions in Acibadem fell for the second consecutive quarter (minus 6.1% y-o-y), led by fewer patients under the local social insurance scheme, which did not affect the revenue intensity per patient (+12.3% y-o-y).

Initiatives to refinance the US$170mil non-lira debt has helped mitigate FX volatility, though average interest cost is higher due to the conversion into foreign exchange swaps.

Gleneagles Hong Kong (GHK) saw lower patient footfall and bed occupancy (3Q19: 58%) due to political unrest, but continues to narrow EBITDA loss to RM39.4mil from 3Q18’s RM49.4mil on higher revenue intensity. Gleneagles Chengdu opened 100 beds in Oct 19, with 24 doctors and c.200 employees across various specialties (paediatrics, gynae, ENT, gastro, etc.)

“ We cut our FY19-21F EPS by 13.0-18.0% on higher depreciation and financing costs, resulting in a lower SOP-based target price to RM6.06 even as we roll forward our valuation to end-CY20F.

“As the share price has recently retraced, we think its valuation is now more palatable at 15.1x FY21F EV/EBITDA, more than two standard deviations below its historical mean.

“Maintain add, with a faster ramp-up of GHK and Fortis as potential catalysts.

“Although Fortis posted its third quarter of operational pre-tax profit, we think the pending court case against IHH-Fortis could be a near-term overhang on the share price, ” it said.

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