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IHH Healthcare - CIMB Research 2015-12-09: Best of stability and growth

IIHH Healthcare - CIMB Research 2015-12-09: Best of stability and growth IHH HEALTHCARE BERHAD Q0F.SI 

IHH Healthcare - Best of stability and growth 


  • IHH's strong pipeline will increase bed capacity by more than 40% over the next three years. The most significant will be Gleneagles HK (completion early-2017). 
  • Management sees prices in HK being 30-50% higher than Singapore with similar EBITDAR margins. For perspective, Singapore forms 45% of group net profit. 
  • With a large portfolio of mature hospitals, we do not expect much margin pressure despite the influx of new capacity. 
  • Maintain Add. IHH is poised for a runway of growth. Beyond its core markets and HK, IHH has also made inroads into India and China for its next phase of growth. 




■ Attractive macro drivers 


  • IHH remains largely unscathed by today’s weak consumer market. While other healthcare players in Singapore have been experiencing a more measured pace of growth, we think IHH has been able to better navigate this because its Novena hospital is still ramping up operating leverage. The long-term trends of rising affluence and an ageing population are still intact while IHH’s well-established brand and enlarged bed capacity position the company to benefit from these trends. 


■ Diversified geographical footprint 


  • An oft-overlooked positive is the complementary stages of maturity of IHH’s operations. Singapore and Malaysia are relatively mature markets generating free cashflow to fund investments in new markets. 
  • Turkey is a high-growth market with multiple greenfield and expansion projects in the pipeline. 
  • India is the latest growth market following the Global Hospitals acquisition. 
  • Hong Kong is poised to be the next cash cow, with Gleneagles HK opening in 2017. 
  • China is likely to be the group’s next core market. 


■ HK will be a significant earnings contributor within five years 


  • Excluding IHH’s international operations, Singapore only contributes ~920 beds or 16% of total bed capacity. However, Singapore made up 45% of its 1H15 core net profit. 
  • The similarities in terms of demographics and economic prosperity between Singapore and Hong Kong lead us to believe that the 500-bed Gleneagles HK will form a significant portion of the group’s earnings going forward. 


■ India and China will provide long-term growth 


  • In 2015, IHH executed its inorganic strategy to enter India. The latest acquisition is a 73.4% stake in Global Hospitals for Rs12.8bn. This will expand IHH’s presence in India to ~1,800 beds (Singapore: ~920, Malaysia and Turkey: ~2,100 each). These are fairly young assets and IHH’s existing operations in India are currently loss-making. 
  • The group has also recently secured an operating license in China. We expect India and China to provide the next phases of growth. 


■ Maintain Add, IHH is our top hospital pick 


  • We maintain our Add rating and SOP-based target price of S$2.52. 
  • In the near term, growth will likely come from a ramp-up in core markets, with a strong S$ providing support. 
  • HK will start contributing from FY17, while India and China will contribute in the longer term.




Jonathan SEOW CFA CIMB Securities | Kenneth NG CFA CIMB Securities | http://research.uobkayhian.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.52 Same 2.52


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