IHH Healthcare - The good, the bad and the ugly

Charges peaking in S’pore  3Q13’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 that there was a bigger issue with peaking charges and revenue intensity in Singapore, rather than the decline in Indonesian patients. Indeed, Indonesian patient admissions jumped by 9% yoy in 3Q13, allaying fears of a weaker rupiah. The average revenue per inpatient in Singapore grew by only 1% from 2Q13, despite favouring S$-to-RM translation.      Translational FX issue  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.      Maintain Neutral  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. As such, we keep IHH at Neutral.