IHH Healthcare

CIMB Research, Nov 26

IHH's Q3 earnings offered no surprises, despite seasonal effects. The good news is the growth story at its new hospitals, while the bad news is confirmation of our view that rate charges at Singapore's hospitals have peaked. Its valuation remains the only ugly facet of this story.

Q3-13 and 9M-13 core earnings were in line, accounting for 21 per cent and 78 per cent, respectively of our FY13 numbers.

We make no changes to our forecasts and our SOP (sum of parts) based target price stays. While we like the IHH franchise, we struggle to find any near-term catalysts.

As we expect better earnings only in FY15-16, the current valuation is decidedly unexciting.

Q3FY13's core net profit was driven by growth at its new hospitals and savings in finance costs despite seasonal effects.

The better numbers were offset by depreciation and finance costs relating to new hospitals that had to be recognised in the P&L after completion. The good news is that Acibadem Bodrum has achieved Ebitda breakeven.

Last week, we mentioned there was a bigger issue with peaking charges and revenue intensity in Singapore, rather than the decline in Indonesian patients. Indeed, such patient admissions jumped by 9 per cent y-o-y in Q3FY13, allaying fears of a weaker rupiah.

The average revenue per inpatient in Singapore grew by only one per cent from Q2FY13, despite favouring S$-to-RM translation.

The balance sheet is still healthy given its savvy cashflow management and structured capex programme. Our main gripe is the uncertainties in FX translational differences in the income statement and balance sheet, which further blurred any meaningful comparisons across its markets.

Although IHH should continue to benefit from growing private healthcare consumption and revenue intensity in all its three markets, improving entry points and fundamentals for its regional peers may provide investors with better short- to mid-term returns. we keep IHH at Neutral, with a TP of $1.72.

NEUTRAL