IHH HEALTHCARE BERHAD
Q0F.SI
IHH Healthcare - 3Q seasonally weak; expect strong 4Q
- 3Q15 core earnings were broadly in line; 9M15 formed 68% of our forecast (vs. 69% in FY14).
- Core net profit growth (+16% yoy) was mostly driven by higher average inpatient revenue in Turkey, ramp-up at Novena Singapore and marginal growth in Malaysia.
- 3Q15 EBITDA margins declined to 23.1% (2Q15: 26.1%, 3Q14: 23.9%) due to share-based expenses, new hospitals in M’sia, and bad debt provisions in Turkey.
- 4Q is seasonally stronger (weather related and increased patient traffic come yearend). Maintain Add.
■ Is healthcare affected by weak ASEAN consumer consumption?
- In short, yes but it is a lot more resilient. Looking at 3Q results across our healthcare coverage, one trend stood out: ASEAN healthcare revenue is still growing but at a more moderate pace. However, IHH benefits from a diversified portfolio with Acibadem being the biggest growth driver even as ASEAN growth slows.
- 3Q15 headline net profit (-19% yoy) looked bad, but was operationally better.
- Excluding non-core unrealised forex losses and currency, core net profit rose 16% yoy.
■ Strong Singapore headline revenue (+19% yoy) and EBITDA (+24%)
- A strong S$ made an ordinary quarter look better than it was. Ex-currency, Singapore revenue and EBITDA growth would have been c.2% and c.7% respectively, with improved margins a result of improved operating leverage at Novena.
- Reflecting the current slow growth environment, inpatient volumes (+0.7% yoy) and average inpatient revenues (+3% yoy) only grew marginally.
- Medical tourism remained flat with weakness in Indonesia, but was better than expected (competitors saw declining medical tourism).
■ Malaysian growth is slow, hampered by new hospitals
- Malaysian revenue grew a healthy 10% yoy, mostly driven by higher average inpatient revenues (+9.6%). However, the general slowdown in consumption following a weaker RM and GST implementation is still apparent and Malaysia reported its fourth consecutive quarter of fairly flat volume growth (-0.2% yoy).
- Impaired by losses at new hospitals (Manjung and Kota Kinabalu), 3Q15 EBITDA grew a mere 1% yoy. Ex-new hospitals, Malaysia’s EBITDA growth would have been 5%.
■ Ex-currency, Acibadem’s 3Q EBITDA grew a healthy 9% yoy but…
- …3Q inpatient volumes declined for a second consecutive quarter (-4.7% yoy), while we were expecting strong volumes.
- In 2Q, Acibadem recorded its first yoy decline (-1.1%) in inpatient volumes as Ramadan started in mid-Jun 15 vs. end-Jun 14.
- Now, management attributed the decline to Eid festivities which fell in 3Q15 vs. 4Q last year.
- We would be concerned if 4Q15 volume numbers remain weak. Notwithstanding, the increased average inpatient revenue (+20.2%) more than compensated for the lower volumes.
■ Earnings growth will come when new hospitals mature
- While weak macros, new hospitals and higher share-based expenses slowed down earnings growth in 3Q, we remain confident of the positive structural themes and management’s ability to ramp up capacity at new hospitals.
- Summer months and Eid festivities would have also accounted for a seasonally weaker 3Q; we expect a strong 4Q.
- We maintain our Add rating and SOP-based target price of S$2.52.
Jonathan SEOW CFA
UOB Kay Hian
|
Kenneth NG CFA
CIMB Securities
|
http://research.uobkayhian.com/
2015-11-27
CIMB Securities
SGX Stock
Analyst Report
2.57
Same
2.57
