IHH HEALTHCARE BERHAD
Q0F.SI
IHH Healthcare Bhd - 3Q17 HK Still The Relative Underperformer
- IHH’s 3Q17 core net profit of RM125m (-42.4% yoy) was a miss against our/consensus expectations, largely due to RM69m start-up costs at Gleneagles HK.
- Singapore saw continual patient load growth (especially foreign patients), and Malaysia benefitted from higher average revenue intensity.
- IHH is on track to open its first China hospital in Chengdu in late 2018/2019, but initial operating expenses should not be alarming, in our view.
- Recent US$500m senior perps issuance could come in handy for potential M&As.
- Maintain Add, with lower FY17-19F forecasts and TP.
3Q17 core net profit was a miss
- IHH’s 3Q17 topline of RM2801m (+14.7% yoy) met our/consensus expectations, led by continued demand and ramp-up at Parkway Pantai (+13.8% yoy) and Acibadem (+17.5% yoy). However, EBITDA was eroded by start-up costs from Gleneagles HK, which resulted in a 42.4% yoy drop in core net profit.
- 9M17 core net profit only formed 49%/47% of our/consensus full-year numbers.
Malaysia and Singapore, boleh!
- IHH continues to record a double-digit yoy improvement in average revenue per inpatient admission for both its Singapore and Malaysia operations, thanks to its strong appeal to foreign patients (particularly from Indonesia and Indo-China), and focus on developing more centres of excellence (COEs).
- We are unfazed by the muted inpatient volume growth in Singapore (+1.1% yoy) and Malaysia (-2.2% yoy), which we attribute to the occurrence of more public holidays in a seasonally-weak 3Q17.
HK and India operations still underperforming
- While Gleneagles HK (opened in Mar 17) was still loss-making, we note that its EBITDA loss narrowed to RM69m in 3Q17, from 2Q17’s RM72m loss.
- We remain positive on its continual ramp-up in operations (esp. more complex procedures) and mom growth in patient load, but think it will reach EBITDA breakeven in FY19F (instead of FY18F prev).
- India also recorded a small, negative EBITDA of RM2.6m (vs. 2Q17’s positive RM4.5m) after incurring some inter-company management fees.
China to become the fifth foothold market
- IHH remains on track in its China expansion plans, starting with Chengdu, Nanjing and Shanghai in late 2018-2020. Its 350-bed capacity Chengdu hospital will first open with 80-100 beds and an estimated 40-50 doctors.
- We expect some pre-opening expenses from 2H18 onwards, but do not think that this will be extensive given the ‘asset-light’ model and 49% ownership. We also note that its recent issuance of US$500m perps is a sizeable war chest for the group to pursue more aggressive M&As in the near-term.
Add call intact, with a lower SOP-based target price
- We lower our FY17-19F EPS by 6.8-19.6%, after adjusting for higher operating expenses from Gleneagles HK, higher financing charges and the recent issuance of US$500m senior perps at 4.25%.
- Our SOP-based target price falls slightly to RM6.36.
- While multiple expansion plans may weigh on near-term profitability, we continue to like the stock for its established track record and global presence.
- Potential M&As are a key catalyst, while downside risk could stem from poor overseas execution.
NGOH Yi Sin
CIMB Research
|
http://research.itradecimb.com/
2017-11-28
CIMB Research
SGX Stock
Analyst Report
6.36
Down
6.990
