IHH Healthcare - Maybank Kim Eng 2019-03-21: Still Good For The Long Haul

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IHH HEALTHCARE BERHAD (SGX:Q0F)

IHH Healthcare - Still Good For The Long Haul

Maintain BUY

• Earnings growth in FY19 could be sustained on organic growth at home markets, reduced losses at GHK and better earnings at Fortis. Upside to our FY19-21F EPS may come from a more aggressive cost reduction drive at Fortis.
• Maintain BUY and SOP-based Target Price of MYR6.90.
• IHH HEALTHCARE BERHAD (SGX:Q0F) trades at 12M fwd PER of 44x (mean: 46x) and EV/EBITDA of 18x (regional avg: 19x).

Key takeaways from NDR

• We recently hosted a 1 day non-deal roadshow for IHH Healthcare in Kuala Lumpur, meeting > 50 fund managers/analysts from 26 funds. Key takeaways are:
  1. Singapore, Malaysia – Patient volume may continue to grow on the ageing population and inflow of foreign patients;
  2. Turkey – Renovation of Acibadem Maslak has just been completed and may contribute to earnings ahead. The repayment of USD250m debt is still pending Bank Negara Malaysia’s approval;
  3. HK – GHK’s occupancy rate stands at 60% now and the timing of when GHK can breakeven is not provided.

More upside from Fortis?

• The court hearing on the Singh brothers-Daiichi Sankyo case has been adjourned to 28th Mar. Hence, IHH Healthcare’s 31% stake in Fortis remains status quo and the open offer (additional 26% stake) is delayed again. Nevertheless, IHH Healthcare will continue to improve Fortis’ profitability:
  1. The privatisation of RHT in Jan 2019 will see substantial rental saving (rental cost: c.INR3.8b p.a. (or MYR220m p.a.));
  2. The interest cost of the existing loan has been renegotiated to 10.25% (from 15-17%) and only a portion of the saving was already reflected in 4Q18;
  3. It is also standardising the procurement and right sizing workforce to reduce costs. In 4Q18, Fortis contributed PATMI of MYR2m.

Maintain earnings forecasts

• Our earnings model has assumed for:
  1. GHK – Lower negative EBITDA of MYR100m in FY19 (FY18: MYR201m), zero EBITDA in FY20 and positive EBITDA of MYR105m in FY21;
  2. Fortis – Breakeven in FY19 and PATMI of MYR19m/MYR27m in FY20-21. We have also assumed for IHH Healthcare to own a 31% stake in Fortis in FY19 and 57% stake in FY20.

Lee Yen Ling Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-03-21

SGX Stock Analyst Report BUY MAINTAIN BUY 6.900 SAME 6.900