IHH Healthcare

CIMB Research on 20 Nov 2012

CALL it expensive or its valuations unjustified, but IHH has been defying the odds. In the last three months, it had debuted on two exchanges and stayed well above its IPO price. The question is, how defensive can the stock be after the results?

We are expecting a core EPS of 1.5 sen for Q3 2012 and 4.6 sen for nine-month 2012 (25 per cent and 77 per cent of FY2013 estimates respectively). FY2013 EPS has been reduced to factor in higher operating expenditures related items. Reiterate "outperform" rating and sum-of-parts target price ($1.53), with catalysts expected from ramp-up of Novena Hospital, and revenue intensity in all three key geographies.

Since listing, its stock price has not fallen below its IPO price for a single day, despite general misgivings about its valuations and growth potential. The healthcare company will be announcing Q3 2012 results next week.

During its results announcement, we will be watching out for: 1) Mount Elizabeth Novena's performance; and 2) the Acibadem Group in Turkey as Q3 is its off-season.

Even if results do fall below expectations, we don't anticipate a share-price collapse. In our opinion, the stock's ownership spread across various long investors underscores investors' confidence in IHH's sustained profitability and long-earned position as a world premier private-healthcare operator.

While investors are generally sold to the huge demand from medical travel and demographic changes like ageing populations, we think positive surprises may yet spring from IHH's ongoing integration and execution of other KPIs of Acibadem. There is a fair amount of synergies and value which may not be fully extracted this year, which should flow through in subsequent years.

We like the sector's defensive attributes and IHH's size in this sector. Further, we believe asset-recycling opportunities could emerge for its Malaysian assets in due course, with the freed capital to be redeployed to growth frontiers in Greater China.
OUTPERFORM