IHH Healthcare - Maybank Kim Eng 2019-05-31: Shortfall On Exceptionally High Taxes

IHH HEALTHCARE BERHAD (SGX:Q0F) | SGinvestors.io IHH HEALTHCARE BERHAD (SGX:Q0F)

IHH Healthcare - Shortfall On Exceptionally High Taxes

But still strong underlying growth; maintain BUY

  • IHH HEALTHCARE BERHAD (SGX:Q0F)'s 1Q19 results were below our/market expectations due to higher-than-expected taxes. But core net profit growth was still intact, driven by margin expansion across all key markets.
  • We trim FY19F EPS by 9% as we raise tax rate assumption to 37% (from 29%); FY20-21F are unchanged. Consequently, our SOP-based Target Price is trimmed to MYR6.80 (-1%).
  • Maintain BUY for its long-term growth prospects in new markets (China, India). Stock trades at 12M fwd PER of 43x (mean: 46x).



MFRS 16: Slight negative impact

  • Excluding the one-offs (total negative: MYR99m), IHH's 1Q19 core net profit of MYR188m (+56% y-o-y, -45% q-o-q) was 17%/18% of our and street’s full-year estimates. The adoption of MFRS 16 led to a total negative impact of MYR12m (or 6% of 1Q19 core net profit), as the higher depreciation outweighed the lower operating lease expense.


Strong deliveries across all markets

  • On a y-o-y basis, IHH's 1Q19 revenue and EBITDA jumped 40%/31%, based on constant currency and also excluding the MFRS 16 impact.
  • All key units (Singapore, Malaysia, Turkey, Fortis, GHK) registered stronger EBITDA on margin expansion (refer results table in attached PDF report). q-o-q, however, core net profit was weaker given the higher tax expense of MYR196m (+92% q-o-q), which implied tax rate of 93% (+80.5-ppt q-o-q). This was largely due to the tax on cash dividend received from RHT HEALTH TRUST (SGX:RF1U) (28%-owned by Fortis), following the disposal of assets to Fortis in Jan 2019 (a restructuring exercise and hence, non-recurring).


Sustainable earnings growth

  • We expect better earnings ahead, underpinned by organic growth in key markets and turnaround at Fortis/GHK. Also, forex-led earnings volatility would be less with the non-Lira debt reduced to USD420m equivalent in Apr 2019 (from USD670m).
  • As for the Open Offer for Fortis (raising IHH’s stake in Fortis to 57% from 31% now), management expects the India’s Supreme Court to lift the stay by 3Q19 as all the hearings are completed.
  • See attached PDF report for IHH's SOP valuation details.





Lee Yen Ling Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-05-31
SGX Stock Analyst Report BUY MAINTAIN BUY 6.80 DOWN 6.900



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