IHH 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.

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.

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.

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.

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.

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