IHH Healthcare (IHH MK) - Maybank Kim Eng 2018-02-28: Healthier Progress In 2018; Maintain BUY

IHH Healthcare (IHH MK) - Maybank Kim Eng 2018-02-28: Healthier Progress In 2018; Maintain BUY IHH HEALTHCARE BERHAD Q0F.SI

IHH Healthcare (IHH MK) - Healthier Progress In 2018; Maintain BUY


Good progress in new hospitals and home markets 

  • We raised our FY18E EPS by 8% and SOTP Target Price by 14% to MYR7.00 after lifting our EBITDA margin estimates for Singapore and Malaysia. 
  • IHH has shown a consistent track record in driving higher case intensity. Singapore achieved another record year for its EBITDA margin, gaining c.4ppt to 29.5% in FY17, while Malaysia achieved a 1.4ppt improvement.
  • FY17 core earnings beat our estimate slightly, by 6%, but missed consensus by 10%. We expect FY18 to be a healthy rebound year as two major hospitals that started in 1Q17 are ramping up nicely. Four home markets have also shown consistent healthy performance.



New Gleneagles HK (GHK) hospital is progressing well 

  • Gleneagles Hong Kong continued to show promising revenue growth of 56% q-o-q in 4Q17, with the EBITDA loss narrowing from SGD72m to SGD65m. It has exceeded management’s expectation, particularly in undertaking complex procedures in just the first two months of opening. 
  • In 1Q18, its revenue intensity is already comparable to IHH’s Singapore hospitals. In addition, GHK is seeing higher patient load due to the flu outbreak in HK.


All home markets continued to show healthy growth 

  • In 4Q17, inpatient volumes and revenue per patient grew across all four home markets. Volume and revenue per patient recorded healthy growth in Singapore (6% y-o-y) due to stronger demand from local and Indonesian patients. 
  • Malaysia continues to record double digit growth in revenue per patient, mainly from ramping up of newer advanced hospitals. 
  • In addition. Turkey has received more foreign patients due to an improved political situation, recording double digit growth for patient volume and revenue per patient.


FY18 EPS to rebound from stabilising new hospitals 

  • FY17 core earnings fell 31% mainly due to short-term start-up costs of two major hospitals, the 500-bed Gleneagles Hong Kong and 350-bed Acibadem Altunizaade, which opened in Mar 2017. We expect FY18 earnings to rebound 58%, due to:
    1. both hospitals are ramping up smoothly; and
    2. there is no opening of major hospital in FY18, except progressive opening of 350-bed Chengdu Hospital under the asset-light space rental model at end-2018.



Swing Factors


Upside

Downside

  • 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/ 2018-02-28
SGX Stock Analyst Report BUY Maintain BUY 7.00 Up 6.300



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