IHH Healthcare - Champ in ramping up leverage

Still a case of increased inpatient volumes and intensity 
1Q15 revenue was up 14% yoy, with increased operating leverage driving core net profit up to RM228m (+32% yoy). In addition to stronger inpatient volumes (+0.3% to 7.2% yoy in 1Q15), average revenue per inpatient in Acibadem and Malaysia saw healthy growth of 10.4% and 13.8% yoy, respectively, as there were price increases to compensate for cost inflation. Dousing these positives was the waning medical tourism in Singapore, where management noted that Indonesian patient volumes were falling. However, this was partially offset by the rising number of patients from non-traditional markets such as the Middle East. In contrast, Thai hospitals have seen mid-to high-teens growth in foreign patient revenues. 

Marginal negative impact of currency on Acibadem in 1Q15 
The strong numbers from Acibadem demonstrated the group’s ability to ramp up operating leverage at new hospitals. Acibadem’s 1Q15 revenue grew 15% yoy, and EBITDA grew 27% to RM148.2m. Ex-currency, 1Q15 EBITDA grew 29% yoy. The strong growth was largely attributed to Acibadem Atakent Hospital (opened in 1Q14), which reduced its start-up EBITDA losses from RM9.9m in 1Q14 to RM0.8m in 1Q15. 

Reiterate Add 
The increases in nurses’ salaries and benefits caused staff costs to rise to 40% of sales (average over FY13-14 was 38%). This is an industry-wide pressure, as we continue to see a short supply of nurses. The mitigating factor is IHH’s operating leverage, as the group builds up capacity and improves its case mix. We are hopeful that the group will continue to ramp up operations at the hospitals opened in the past 2-3 years. To illustrate the significance of these hospitals to the group, Mount Elizabeth Novena’s (Novena) revenue increased by 34% yoy in 1Q15, and EBITDA rose by 73%. Novena currently operates ~180 beds and expects to add another 30 beds in 2Q15. Maintain Add.

Global Logistic Properties - Ending the year on a high note

Sturdy topline growth from China ops and fund management 
GLP reported a 6% hike in 4QFY15 revenue to US$167m while net profit came in 34.5% lower at US$105m. FY15 net profit of US$486m was achieved on the back of new and expansion leases of 3.7m sm, in line with its earlier stated target. China continued to shine on strong leasing momentum of 3.1m sm and higher rents averaging +5.5%. Existing tenants took up 72% of these leases. There was increased property management and acquisition fee income totalling US$108m. This helped to partially offset lower Japan earnings post asset sales, revaluation losses from Brazil due to cap rate expansion and one-time transaction related costs from the US portfolio acquisition as well as higher minority leakage. 

Projecting 30% growth in development starts 
GLP plans to increase its development start target by 30% to US$3.4bn and its development completion target by 92% to US$2.3bn, of which China will account for US$2.2bn and US$1.4bn, respectively. With a demand backlog of 8m sm in China, the group is well placed to tap growth in this segment. To fund these development capex, GLP will continue to utilise its existing cash resources of US$1.4bn and is planning a second China logistics fund with an estimated AUM size of US$6bn. As the properties are completed and marked to market, these developments will boost GLP’s NAV and fee income platform value. It will continue to ride the active leasing market in Japan and Brazil, in our view. Plans to pare down its stake in the GLP US Income Partners fund to 10% are on track. 

Maintain Add 
We continue to like GLP for its leadership position in the modern logistics warehouse sector in China, and the accelerated growth momentum of its development activities and fund management business. These activities should move the group closer to its medium-term ROE target of 15%. We tweak our FY16-17 estimates by 5-8% on expectation of a more 2H-loaded earnings profile.