IHH Healthcare Bhd - CGS-CIMB Research 2018-11-27: 3Q18 Stung By FX Losses


IHH Healthcare Bhd - 3Q18: Stung By FX Losses

  • Stripping out FX losses, 3Q18 core PATMI would have grown y-o-y and q-o-q to RM309m, above our/consensus’ expectations. Maintain ADD. 
  • Operational strength has mitigated seasonality and slower Gleneagles Hong Kong (GHK) turnaround. 
  • Share price IHH Healthcare could recover in 2019 as IHH delivers on Turkey and Fortis. 

Look beyond the 3Q18 headline loss

  • IHH’s 3Q18 headline net loss of RM104m did not come as a surprise, given the q-o-q 30% depreciation of the Turkish lira vs. US$. Excluding these exceptional items, 3Q18 core PATMI would have been RM309m (+146% y-o-y, +20% q-o-q), representing 39%/40% of our/consensus’ full-year forecasts.
  • While 3Q18 revenue was flat, EBITDA improved 10% to RM616.8m, mainly due to the ramp-up of Acibadem Altunizade hospital. Such growth would have been stronger at 18% and 23% y-o-y respectively, on constant currency terms.

Acibadem benefited from stronger medical tourism

  • Despite the lira weakness, Acibadem was operationally stronger, recording 7.5% and 31.5% y-o-y growth in inpatient admission volume and average revenue per inpatient admission, on the back of more complex cases, price adjustments and higher foreign load (22% of overall vs 14% previously).
  • With the completion of its 30% stake purchase by end-4Q18 and pending regulatory approval, IHH will be able to repay its subordinated loan of c.US$250m, and divest non-core assets to deleverage its balance sheet.

Fortis consolidation from 4Q18F

  • IHH will consolidate its 31% stake in Fortis Healthcare in 4Q18F, pending the open offer for another 26%. While the Indian healthcare group posted an adjusted net loss of Rs706m (RM42m) in its recent 2QFY3/19, we noted improving occupancies to 69% and EBITDAC margin to 12.5% (1Q19: 7.7%, 2Q18: 16.7%).
  • We see scope for margin expansion with IHH’s 100-day plan to unlock value for Fortis, which includes the purchase of RHT Indian assets and potential spin-off of SRL Diagnostics.

North Asia to come onstream progressively

  • Gleneagles Hong Kong (GHK) continued to see decent bed occupancy (c.50%) and similar average bill size as Singapore. 3Q18 EBITDA loss narrowed y-o-y but widened q-o-q to RM49m, due to new services and seasonality.
  • Both Chengdu and Shanghai hospitals are on track to open (initial phase of 80-100 beds) in 2H19 and 2H20 respectively.

Maintain ADD; fixing Turkey and Fortis will be key

  • Our model now reflects the 3Q18 results, a 31% contribution from Fortis Healthcare and a higher stake of 90% in Acibadem (with enlarged share base), leading to changes in our FY18-20F forecasts. Our SOP-based Target Price dips slightly to RM6.40, even as we roll-over to end-CY19F valuation.
  • Maintain ADD.
  • Downside risks: poor overseas execution, unfavourable FX and regulatory changes.
  • Successful de-risking of Turkey exposure and integration of Fortis will be key re-rating catalysts.

NGOH Yi Sin CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-27
SGX Stock Analyst Report ADD MAINTAIN ADD 6.40 DOWN 6.630