IHH to continue delivering stronger earnings
KUALA LUMPUR: IHH Healthcare Bhd (IHH) has been projected by Affin Hwang Investment B an kBhd(Affi nH wang Capital) to continue delivering stronger earnings going forward on the back of organic growth at the group’s home markets.
AffinHwang Capital also expected the stronger earnings to be underpinned by “continual ramping-up of young hospitals such as Gleneagles Medini, Gleneagles Kota Kinabalu and Acibadem Altunizade as well as new bed capacity at Pantai Hospital Kuala Lumpur, shrinking startup losses from GHK and accretive earnings contributions from Fortis.”
However, AffinHwang Capital reduced its 2019-2021 earnings per share (EPS) estimates on IHH by 18 per cent-24 per cent.
This was on the back of the research firm postponing its earnings before interest, tax, depreciation and amortisation (EBITDA) breakeven forecast for GHK by one year to 2020E (from 2019E), adjusting its currency assumptions mainly to account for the weakening of the Turkish lira against the ringgit and imputing a higher interest rate from the swap into local Turkish Liradenominated loans.
“Despite lowering our earnings estimates, our sum of the parts (SOTP)-based target price has increased from RM6.36 to RM6.49 as we incorporate Fortis’ operation post-completion of the 31 per cent stake acquisition, which we believe should be positive in the long run,” the research firm said.
“We forecast a three-year core earnings compound annual growth rate (CAGR) of 15 per cent and maintain our ‘buy’ rating on IHH.”
While AffinHwang Capital did not rule out the possibility of any adjustment or impairment on Fortis given the ongoing investigation, it believed that the chances of goodwill impairment stem ming from Fort is’ profitability are diminishing.
This comes management has taken several measures to enhance profitability, that is, lower borrowings cost and clinical establishment cost savings.
“For its Acibadem operations, while we acknowledge that there is always a risk of forex volatility of the Turkish lira against the ringgit, Acibadem’s operations have remained resilient, with past-five-year CAGRs for inpatient admission and revenue per inpatient of 14 per cent and 10 per cent respectively.”