IHH Healthcare - Maybank Kim Eng 2019-12-02: Growth Offset By Higher Interest Expense


IHH Healthcare - Growth Offset By Higher Interest Expense

Uncertainty lingers; maintain HOLD

  • IHH HEALTHCARE (SGX:Q0F)'s 3Q19 results were below our and market’s expectations. Operational earnings growth in 4Q could be slower given the start-up loss at Gleneagles Chengdu.
  • We reduce our FY19-21E EPS by 5-8%. Consequently, our SOTP-based Target Price is trimmed to MYR5.80 (-8%). Maintain HOLD as IHH Healthcare Share Price has already fallen 8% in 3 months, potentially pricing in the weak 3Q19 results.
  • Key downside risk may come from an unfavourable outcome of India’s court hearing in Feb 2020, which may see IHH Healthcare reversing its acquisition of 31% stake in Fortis. Prefer KPJ (KPJ MK) for the better risk-reward.

Below expectations

  • Excluding net positive EIs (exceptional items, totalling MYR34m), 3Q19 core PATMI of MYR202m (-16% q-o-q, -35% y-o-y) brought 9M19 core PATMI to MYR631m (- 8% y-o-y), making up 66%/61% of our and street’s full-year forecasts. The shortfall was due to the recognition of MYR65m fair value loss on forward contracts (to hedge against exchange rate exposures on its net debt).
  • See IHH Healthcare Announcements; IHH Healthcare Latest News.

3Q19: Acquisition-led EBITDA growth

  • On a y-o-y basis, 3Q19 revenue and EBITDA jumped 36% and 22%, based on a constant currency and excluding the MFRS 16 impact. The stronger y-o-y growth was mainly acquisition-led and partially due to organic growth at its existing hospitals.
  • Note that Fortis (acquired in Nov 2018) accounted for 14% of Group’s EBITDA in 3Q19. However, core PATMI fell 35% y-o-y due to the higher net interest expense and higher tax expense.
  • On a q-o-q basis, 3Q19 EBITDA grew 7% on better earnings from Singapore, Malaysia and India (including Fortis), which more than offset for weaker earnings from North Asia (including GHK). Turkey’s 3Q19 EBITDA was stable q-o-q.

Lower FY19-21E EPS by 5-8%

  • We lowered our FY19E EPS by 5% to reflect the fair value loss on forward contracts in 3Q19. Our FY20-21E EPS is also lowered by 8% p.a. as we reduce our EBITDA margin assumption by 1-ppt at Singapore, Malaysia and Turkey, to factor in the wage inflation as a result of increased competition for trained healthcare personnel at home markets.

Lee Yen Ling Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-12-02
SGX Stock Analyst Report HOLD MAINTAIN HOLD 5.80 DOWN 6.300