IHH Healthcare - Strong despite start-up losses

Strong underlying operations ex-currency 
4Q14 revenue was up 9% yoy and earnings rose 42% yoy. This was driven by 1) higher inpatient admissions and revenue intensity, and 2) a revaluation gain of RM52.7m for PLife REIT’s investment properties and a divestment gain of RM36.4m. Stripping out the effects of PLife REIT, 4Q14 underlying core earnings rose 26% yoy. Overall, FY14 core earnings on a constant currency basis increased by 25% yoy. 


Both Singapore and Malaysia remain strong 
Parkway Pantai’s FY14 EBITDA grew 16% yoy, and continues to benefit from operating leverage at its new hospitals (FY14 EBITDA margins of 25.5% vs. FY13’s 24.9%). Mount Elizabeth Novena’s FY14 EBITDA increased to RM87.1m (FY13: RM21.6m), which translates to margins comparable to its existing Singapore hospitals. Management highlighted stable medical tourism, with an increase in foreign patients from non-traditional markets such as the Middle East and Myanmar. Revenue per inpatient in Malaysia increased by a healthy 9.2% yoy, driven by higher revenue intensity and price increases to compensate for cost inflation. 

Acibadem impacted by weak currency 
FY14 EBITDA rose 3% yoy on a depreciating Lira, which fell 9%. Ex-currency, FY14 EBITDA increased by 14% yoy. We can expect further margin expansion in Acibadem as Atakent builds up operating leverage (opened Jan 14). 

Strong expansion pipeline 
IHH plans to deliver more than 9,000 (currently ~7,000) new beds by 2017. There is also upside potential from Gleneagles Hong Kong (target commissioning early 2017; 500 bed capacity) which we have yet to include in our numbers.

Sheng Siong Group - A steady quarter

Sales growth has been limited without new stores 
4Q14 sales rose 4.7% yoy, which was slightly lower than the growth experienced in 1H14 (~6%), as additional revenue from longer operating hours was no longer a contributing factor since Sheng Siong started this initiative in 4Q13. Overall, FY14 sales increased by 5.6% yoy, with same-store sales contributing 3.3%. The eight new stores which were opened in FY12 would be entering their third year of operation, and growth is expected to normalise. This reaffirms our view that growth has to come from new stores. With two new stores added recently, coupled with a new segment in integrated dormitories, we remain optimistic on store growth. 

Gross margins are here to stay 
FY14 gross margins improved to 24.2% (FY13: 23.0%; FY12: 22.1%). This was driven by 1) economies of scale and lower input costs from its distribution centre, 2) a better sales mix, and 3) stable selling prices. We think these are normalised levels. Going forward, the deferment of planned increases in foreign worker levies for one year announced at this year’s Budget, together with savings in utility charges from lower oil prices could provide positive surprises for the group’s margins. 

Dividend payout policy maintained at 90% 
We expect the China JV to begin operations in 2H15 at the earliest, in view of the pending approvals from the relevant Chinese authorities. Sheng Siong remains in a net cash position of S$130m. FY14 DPS was 3 Scts, representing a yield of 4.1% and a payout ratio of 91%.