IHH Healthcare Bhd - CGS-CIMB Research 2018-08-28: 2Q18 Growth Returns

IHH Healthcare Bhd - CGS-CIMB Research 2018-08-28: 2q18 Growth Returns IHH HEALTHCARE BERHAD SGX:Q0F

IHH Healthcare Bhd - 2Q18: Growth Returns

  • IHH’s 1H18 core PATMI (+31% y-o-y) was a slight miss against our/consensus expectations.
  • Each market saw its share of misfortune in 2Q18: Singapore and Acibadem (FX translation), Malaysia (festive and election period), India (movement of some surgeons).
  • But focus for each market is clear: Singapore (attracting from non-traditional markets), Malaysia (northern region), Acibadem (FX exposure) and India (gain greater scale via Fortis).
  • Gleneagles Hong Kong (GHK) on track for earnings turnaround; staff hiring commences for Chengdu hospital.
  • Maintain ADD; we see sustained improvement in core operations (exclude FX impact).

Stronger 2Q18; 1H18 still a miss

  • IHH’s 2Q18 reported PATMI of RM165m was 48% lower y-o-y, largely due to substantial FX losses on net borrowings, absence of RM241m disposal gain in 2Q17 and muted topline. Excluding exceptional items, 2Q18 core PATMI would have been RM257m, surging 198% y-o-y and 113% q-o-q.
  • IHH’s 1H18 core PATMI formed 45%/43% of our/Bloomberg consensus full-year forecasts, deemed a slight miss. We cut our FY18-20F EPS by 2.2- 5.2% to reflect lower revenue assumptions, weaker margins and higher tax rate.

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Higher average revenue per inpatient for SG and MY

  • Even as inpatient admissions in Singapore held steady in 2Q18 (+0.4% y-o-y), IHH seeks to focus more on “non-traditional” markets (e.g. Vietnam) and pre-admission. Average revenue per inpatient admission improved 8.8% y-o-y, but overall revenue was flattish due to a stronger ringgit.
  • In Malaysia, where the northern region is doing better, management attributes the 2.8% y-o-y drop in inpatient volume to seasonality and the general elections but this was offset by higher average revenue per inpatient admission (+8.4%).

Lira weakness an ongoing concern

  • On constant currency terms, Acibadem performed well, with inpatient volume and average bill size growing 8% and 20% y-o-y respectively, thanks to rebound in medical tourism on the back of a depreciating lira. Steps to manage IHH’s lira exposure remain unchanged.
  • India, on the other hand, suffered both a temporal loss of surgeons (which have since been replaced) and drop in ‘bread and butter’ cases, resulting in 5.5% lower patient load. This was mitigated by higher revenue intensity (+9.5% y-o-y).

GHK turnaround on track; turns to mainland Chinese

  • We continue to see narrowing EBITDA losses for Gleneagles Hong Kong (GHK) to 2Q18’s RM48.8m (1Q18: RM51.0m, 2Q17: RM72.4m) on the back of expanded service offering. By targeting the Chinese market via mainland insurance partners and referral agents, GHK hopes to achieve faster EBITDA breakeven.
  • Meanwhile, retrofitting of the Chengdu hospital and recruitment of doctors and support staff are both underway, and management expects to open 100 beds in the initial phase with no plans yet for Yibao (China’s national health insurance).

Maintain ADD

  • With stable Singapore and Malaysia operations holding the fort and Acibadem potentially becoming less of a drag with FX measures put in place, we see China and India as the key growth engines for IHH. 
  • We maintain our ADD call on the stock with a reduced SOP-based Target Price of RM6.63. 
  • Potential re-rating catalysts are faster GHK turnaround and successful de-risking of Turkey exposure. 
  • Poor overseas execution, unfavourable FX movements and regulatory changes could pose downside risks to our Add call.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-28
SGX Stock Analyst Report ADD Maintain ADD 6.63 Down 6.860