Better 2HFY17 Performance Expected For IHH

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KUALA LUMPUR: AmInvestment Bank Research has maintain a “hold” on IHH Healthcare with a lower fair value of RM6.33 and believed its performance will improve from the second half of FY17 onwards.

“We believe the group’s performance will improve from 2HFY17 onwards on the back of the ramping-up of new hospitals, particularly Gleneagles HK (GHK),” it said, adding that GHK’s start-up cost was expected to narrow as revenue intensity increases, arising from the acceptance of more complex cases.

AmInvestment has also rolled forward its valuation base year to FY18 for IHH. Recall that IHH’s 2Q17 results missed our and consensus’ estimates due to the higher-than-expected one-off start-up cost incurred by GHK.

“We have trimmed our earnings forecasts by 35%/33%/17% for FY17/18/19F to account for higher start-up costs and gestation losses from new hospitals,” it said.

The research house said IHH’s revenue was poised to grow by 25% in FY18, underpinned by a 4-5% increase in bed capacity.

The expansion of Pantai Hospital Kuala Lumpur and opening of Gleneagles Chengdu will contribute an additional 470 beds in FY18.

“We estimate Ebitda margin to be about 22% in FY17-FY18. Nonetheless, we expect to see an impressive earnings growth once GHK has achieved breakeven, given its sizeable operations (equivalent to two hospitals in Singapore). We believe that GHK will achieve breakeven in 18-24 months,” AmInvestment said.

To drive earnings growth in Parkway Pantai Limited (PPL) Malaysia and PPL Singapore, the
group is focusing on enhancing service excellence and increasing revenue per bed.

“Management is looking at reducing the length of stay with the use of more sophisticated medical technology, which results in more minimally invasive surgeries.

“This increases bed turnover and results in higher yield per bed. Currently, average length of stay in Malaysia and Singapore is less than three days,” it said.

AmInvestment said according to management, the Indian market was a volume game. IHH reiterates its interest in M&A as an expansion means, especially in North India, which has the highest healthcare spend per capita.

“We continue to like IHH for the strong prospects of the private healthcare sector backed by rising affluence and the aging population; its positioning in the premium segment of the private healthcare sector, translating to high margins; and its global presence with a geographically well-diversified portfolio of hospitals.

“Nonetheless, we believe the current share price has very much priced in IHH’s fundamentals,” AmInvestment said. -THE STAR