IHH Healthcare - DBS Research 2016-02-26: Core results within expectations

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IHH HEALTHCARE BERHAD Q0F.SI 

IHH Healthcare - Core results within expectations 

• 4Q15 headline earnings aided by exceptional items; core earnings fell 11% on interest, start-up costs 
• Earnings growth to moderate slightly in FY16F 
• Long term prospects reflected in share price on premium valuation at 51.2x FY16F earnings 
• Maintain HOLD, TP revised to RM6.33/ S$2.09 

 HOLD, TP: RM6.33. 

• We maintain our HOLD recommendation for IHH with a revised TP of RM6.33/ S$2.09. 
• While we like its geographical diversification and premium healthcare services provider status, we believe current valuation at c.51.2x FY16F PE reflects this. 

 4Q15 strong due to exceptional items; FY15 core in line. 

• IHH’s 4Q15 reported net profit surged 74% y-o-y to RM415.8m on revenues of RM2.3bn (+18%). This was due exceptional items (EI) of RM201.2m. 
• Excluding EI, 4Q15 core net profit would have been RM214.6m, down 11% y-o-y, due to higher finance costs and depreciation expenses of new hospitals. 
• FY15 core profits were in line, growing by 15% y-o-y to RM899m on revenues of RM8.46bn (+15%) arising from organic growth and contribution from new hospitals. 
• While inpatient admissions numbers were fairly lacklustre, revenue growth was helped by higher revenue intensities and more complex cases handled. 

 Growth to continue but a tad slower pace. 

• We project growth to continue but a tad slower in FY16F. We trimmed our earnings forecast by 8% to factor in slower growth in admissions, higher costs, pre-operating expenses and interest expenses. 
• Valuations continue to remain lofty at 51.2x FY16F PE, reflecting its long-term growth profile and premium status. 

Valuation: 

• Our target price is revised to RM6.33 (S$2.09), rolling our valuations forward to FY17F/18F. 
• We continue to adopt the sum-of-parts valuation methodology to reflect IHH's various operations and growth profiles across the different geographies. 

Key Risks to Our View: 

• Economic slowdown. While healthcare is deemed as a defensive sector, private healthcare will, nonetheless, be impacted by a slowdown in the economy, since elective procedures can be deferred and patients may choose public hospitals as a lower-cost alternative.

Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-02-26

DBS Vickers SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.09 Up 2.04