IHH Healthcare

UOBKayhian on 26 Nov 2014

FY14F PE (x): 52.8.
FY15F PE (x): 40.9
Results broadly in line. 9M14 adjusted net profit of Rm540.8m accounts for 71.8% of our
full-year earnings estimates. The 23% yoy increase was on the back of higher inpatient
volumes and average revenue intensity from existing and new hospital contributions.
Hospital expansions to drive organic growth. About 3,000 new beds will be added
progressively to IHH’s current 6,000-bed portfolio through several expansions, as well as
brownfield and greenfield projects. The average daily census (ADC) for Mount Elizabeth
Novena Hospital (MENH) of 180 for 3Q14 was higher than its average of 90. This
increase in average number of patients in the facility per day also implies that
utilisation for MENH is picking up.
Expect greater cost pressure. Wages are expected to continue increasing in Malaysia
and Singapore after staff cost rose by 13% on average in 3Q14. Management has
guided that after excluding extra staff cost incurred for expansions, a like for like
comparison would be around 8-9% compared with last year’s 6%. The increase is driven
mainly by higher nurse salaries and the restriction of foreign workers. Although the price
adjustments did not fully factor in the wage cost pressures, the group still managed to
increase savings on consumables which exceeded expectations by 30% ytd on the back
of efficient sourcing and procurement. In lieu of the rising cost pressure and an Apr 15
GST hike in Malaysia, the group has indicated its intention to raise prices in multiple
stages next year.
Maintain SELL at a target price of S$1.60. We continue to think valuations are
overpriced with the stock currently trading at a 2015F PE of 41x vs the peer average of
29x. Within the Singapore-listed healthcare space, we prefer Raffles Medical and QT
Vascular, for those with a more aggressive risk appetite.