Thursday, November 29, 2012

IHH Healthcare: 3Q down but not out

3Q within expectations. 3Q core net profit slipped 19% y-o-y to RM96.1m,
largely due to start up losses from Novena Hospital (Novena). Excluding
losses from Novena and exceptional items, net profit would have been up by
22% to RM141.6m in 3Q12, from RM116.4m in 3Q11. 9M core profits (including
Novena medical suites) forms 76% of our forecasts.

Novena losses narrowing. In 3Q12, Novena saw more than 500 inpatient
admissions, contributing RM19.1m in revenues registering an EBITDA loss of
RM23.9m. This was an improvement from 2Q12’s EBITDA loss of RM28.3m.
Management is optimistic that Novena’s performance will continue to improve
with increasing admissions on the back of rising number of specialists
operating there. We understand that management still expects Novena to turn
EBITDA positive by 2H13.

Recapitalising Acibadem for interest savings. The group intends to
recapitalise Acibadem in order to repay a portion of the US$ debt, and
indicated this should result in interest savings of US$11m p.a.. This is
also expected to reduce its exposure to currency fluctuations and result in
a stronger balance sheet for Acibadem.

Maintain BUY, TP unchanged at S$1.38 (RM3.45).  We are expecting a
seasonally stronger 4Q. We maintain our BUY recommendation and sum-of-parts
based TP at S$1.38 (RM3.45). We reiterate our view that IHH remains a key
proxy to healthcare in the region, and coupled with its robust growth
profile (CAGR FY11-14F of 55%), offers investors an attractive exposure
into this sector.

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