IHH Healthcare (IHH MK) - Maybank Kim Eng 2017-11-28: Start-up Drag Stabilising And Priced In; U/G To BUY

IHH Healthcare (IHH MK) - Maybank Kim Eng 2017-11-28: Start-up Drag Stabilising And Priced In; U/G To BUY IHH HEALTHCARE BERHAD Q0F.SI

IHH Healthcare (IHH MK) - Start-up Drag Stabilising And Priced In; U/G To BUY

Slight miss but start-up costs from HK have stabilised 

  • Upgrade IHH to BUY from HOLD. The 12M share price correction of 12% has priced in the start-up drag of new HK hospital and its EBITDA loss has stabilised, in our view, supported by robust 69% QoQ topline growth in 2Q17 (all four home markets delivered double-digit YoY revenue growth).
  • The shares are undervalued at 19.5x FY18E EV/EBITDA or 1SD below the 5-yr mean (19.0x) given our EBITDA growth forecast. We increased our SOTP TP by 2.5% to MYR6.30 after raising the future EBITDA margin for Singapore to reflect better case intensity and efficiency beginning in 2020. 
  • 3Q17 core earnings were a slight miss from our forecast but a big miss vs. consensus; 9M17 met 69% of our est. but 52% of consensus FY17E. 3Q17 core earnings recorded a robust 45% QoQ growth despite a 42% YoY decline. 
  • We cut FY17E EPS 6% after trimming revenue for the new HK hospital to reflect a slower ramp up.

New Gleneagles HK hospital is gaining traction 

  • The hospital has shown great progress in attracting patients where the bed occupancy has been growing 40-50% MoM. This trend is similar to Singapore’s Mount E Novena, when it first opened in 2012. 
  • Revenue growth was also healthy, at 69% QoQ in 2Q17, and EBITDA loss remains flat QoQ due to some additional ramp-up costs. 
  • In addition, many insurance companies are preparing to enlist the hospital into their panel as they require 1-6 months of track record from a new hospital.

Home markets continued to deliver healthy results 

  • In 3Q17, inpatient volumes and revenue per patient grew across all four home markets except for Malaysia, where patient volume declined due to more public holiday. 
  • Revenue per patient recorded strong growth in Singapore (11.9% YoY) due to more complex cases and revenue growth from the Indonesian patients continued to remain robust, at +25% YoY. 
  • In addition, Malaysia’s revenue per patient also reported robust growth (+13.9% YoY) due to ramping up of new advanced hospitals. 
  • Turkey has received more foreign patients due to improved political situation.

Ample growth pipeline in China, Malaysia and Turkey 

  • To sustain growth, three new hospitals with c.900 beds in China and two hospital expansion projects in Malaysia with c.300 beds are expected to complete in 2018-19. Beyond that, IHH has c.600 beds in the pipeline.

Swing Factors


  • Faster-than-expected ramp-up of new beds.
  • Expansion beyond its existing pipeline.
  • Continued weakening of MYR, especially against SGD.


  • Regulatory risks, including caps on healthcare pricing and restrictions on foreign doctors.
  • Strengthening of MYR against SGD and other currencies that lead to translation losses.
  • Geopolitical risks in less-stable emerging markets, such as Turkey, Iraq and UAE.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-11-28
Maybank Kim Eng SGX Stock Analyst Report BUY Upgrade HOLD 6.30 Up 6.170