IHH Healthcare

UOBKayhian on 29 May 2015

FY15F PE (x): 48.2
FY16F PE (x): 38.8

IHH Healthcare’s (IHH) 1Q15 net profit below our and consensus full-year estimates by 23% and 9% respectively on the back of lower-than-expected inpatient volume growth at Parkway Pantai Life (PPL) Malaysia and the Acibadem business. Revenue and adjusted net profit increased 14% and 8% yoy respectively, driven mainly by growth in inpatient volume and revenue intensity. The group continues to ramp up operations in its relatively newer hospitals - Mount Elizabeth Novena Hospital, Acibadem Ankara Hospital and Acibadem Bodrum Hospital. Lower-than-expected inpatient volume growth. Our previous 2015 inpatient volume growth estimates for Parkway Pantai Life (PPL) Singapore, PPL Malaysia and Acibadem was 9.5%, 21.9% and 10.9% yoy respectively. Typically, growth in inpatient volumes are stronger in the second and third quarter of the year due to seasonality where inpatient and outpatient volumes are generally lower during festive periods and summer months. However, with inpatient growth for PPL Malaysia and Acibadem slowing down yoy in 1Q15, we have lowered our estimates to 16.2% and 9.2% respectively. Our inpatient volume growth assumption for PPL Singapore remains unchanged. Currently, one-third of IHH’s patients are foreigners while local patients make up two-thirds. In addition, we expect the increase in Middle Eastern patients to offset fluctuations from Indonesia. Maintain SELL with a lower target price of S$1.77 (from $S1.80). We think valuations are stretched and relatively unattractive at 48.2x 2015F PE vs peers’ average of 30.6x. Within the Singapore-listed healthcare space, we continue to prefer Raffles Medical and QT Vascular, the latter for those with a more aggressive risk appetite.