AmInvestment: IHH performance to improve from second half
PETALING JAYA: IHH Healthcare Bhd’s performance should improve from the second half of financial year 2017 onwards on the back of the ramping-up of new hospitals, particularly Gleneagles HK (GHK), says AmInvestment Bank Research.
The research firm which is maintaining a “hold” call on the healthcare group with a lower fair value of RM6.33, noted that GHK’s start-up cost was expected to narrow as revenue intensity increased, arising from the acceptance of more complex cases.
AmInvestment has also rolled forward its valuation base year to FY18 for IHH.
“IHH’s 2Q17 results missed our and consensus’ estimates due to the higher-than-expected one-off start-up cost incurred by GHK.
“We have trimmed our earnings forecasts by 35%/33%/17% for FY17/18/19F to account for higher start-up costs and gestation losses from new hospitals,” the research firm said.
It said IHH’s revenue was poised to grow by 25% in FY18, underpinned by a 4%-5% increase in bed capacity.
The expansion of Pantai Hospital Kuala Lumpur and opening of Gleneagles Chengdu will contribute an additional 470 beds in FY18.
“We estimate Ebitda margin to be about 22% in FY17-FY18. Nonetheless, we expect to see an impressive earnings growth once GHK breaks even, given its sizeable operations (equivalent to two hospitals in Singapore).
“We believe that GHK will break even in 18month to 24 months,” AmInvestment said.
To drive earnings growth in Parkway Pantai Limited (PPL) Malaysia and PPL Singapore, the group is focusing on enhancing service excellence and increasing revenue per bed.
“Management is looking at reducing the length of stay with the use of more sophisticated medical technology, which results in more minimally invasive surgeries.
“This increases bed turnover and results in higher yield per bed.
“Currently, average length of stay in Malaysia and Singapore is less than three days,” it said.
“We continue to like IHH for the strong prospects of the private healthcare sector backed by rising affluence and the aging population; its positioning in the premium segment of the private healthcare sector, translating to high margins; and its global presence with a geographically well-diversified portfolio of hospitals.