International Healthway - A diversified healthcare portfolio


• IHC has assets in Japan, China and Australia

• Projects in the pipeline could contribute to earnings growth from 2018

• IHC expects listing of REITs to unlock value, reduce gearing

Background
International Healthway Corp (IHC) provides healthcare services as well as owns and manages medical facilities through its portfolio of healthcare assets. It was listed on the SGX in July 2013 as a spin-off from Healthway Medical Corp (HMED SP, SGD0.054, Not rated). We recently met IHC’s management (CEO and co-founder Mr. Fan Kow Hin) for a business update.

Highlights
Operational assets. IHC currently has two key operational assets: 1) IHC Wuxi New District Phoenix Hospital, a 125-bed Class 2B tertiary hospital in China, and 2) 12 nursing homes located across major cities in Japan, with a total of 1,458 nursing rooms.

IHC’s 2014 revenue grew by 13.2% YoY, largely due to the 38% YoY rise in rental income, attributable to contribution from its Japan nursing facilities, to which it added around 100 new rooms during the year.

Looking ahead, management expects utilisation rates at its Wuxi hospital to remain high, with further revenue growth coming from its proposed hospital expansion. It also sees organic growth of around 5% YoY for its nursing home assets, driven by strong demand for care services for the elderly in Japan.

Unlocking value through REITs. In addition to its existing operational assets, IHC acquired 3 freehold properties (2 in Melbourne, 1 in Geelong) in Australia in March 2014 for a total of SGD80m. Management said it plans to redevelop these progressively for mixed use (which will include medical suites), and expects demand for healthcare services to be healthy due to its proximity to hospitals and other medical facilities in both Melbourne and Geelong.

Ultimately, management intends to unlock value in its portfolio through REIT listings for its Japan and Australia assets. It expects to finalise plans for a potential listing of its Japan assets over the next 6-9 months, which it believes could see a significant revaluation from around SGD260m currently, based on existing yields of similar healthcarebased REITs in Japan.

Developments in the pipeline

IHC has 3 key projects currently in the pipeline, which management expects could contribute to earnings growth over the medium term: 
1) IHC KLCC (Malaysia), a 33-storey integrated mixed-use development, which will include specialist medical suites (targeted completion in 2018), 

2) IHC Chengdu (China), a proposed 150-bed tertiary hospital which will include a wellness-themed retail and lifestyle centre with medical suites (slated to be completed by 2018), and 

3) IHC Wuxi Hospital Expansion (China), an 800-bed, 19- floor hospital adjacent to its existing Wuxi hospital (phase 1 to be completed by 2019). 

Management said it expects ground-breaking for its KLCC project to commence in 3Q15, and also expects to commence construction for its two China projects by end-2015.

Managing its gearing. Excluding the SGD49m fair-value gain on its investment properties, IHC would have reported a pre-tax loss of SGD2.7m in 2014, largely due to the SGD19m in interest expenses, a function of its leveraged balance sheet (1.33x net debt/equity).

Management said it is in the process of refinancing its existing debt, and is confident it will be able to reduce its blended interest cost from around 15% to 7-8% by end-2015. Over the longer term, management said it is comfortable with a target gearing of 0.5x, which could be achieved through the potential listing of REITs and the successful completion of its planned projects.


Technical Analysis
Daily Chart
Valuation
There are no consensus estimates available for IHC. Based on its reported 2014 results, the company is trading at a PBR of 2.3x. (Read Report)

Source : Daiwa Capital Markets

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