IHH Healthcare - Impacted By Translation Losses


Premium status reflected in price, Maintain HOLD. We maintain our HOLD recommendation for IHH with a revised TP of RM6.19/ S$2.04. While we like its geographical diversification and premium healthcare services provider status, we believe current valuation at c.48x FY16F PE reflects this.

3Q core results within expectations. While 3Q15 headline showed a drop of 19% y-o-y to RM118.5m, this was due to FX translation loss of RM217m arising from non-Turkish Lira borrowings by its Turkey operations. Excluding this, core profits would have been RM222.7m, registering a growth of 26% which will be within our expectations. Revenue grew by 16% to RM2.064bn. While inpatient admissions numbers were fairly lackluster (partly due to seasonality and economy), revenue growth was helped by higher revenue intensities and more complex cases being handled.

Trimmed FY15F forecasts by 11%. We trim our earnings forecasts by 11% to factor in the FX translation, but retain our operating forecasts for FY15F and FY16F. We project growth to remain at high teens/ low twenties on organic and new operations. The higher rate of growth seen for FY16F arises from a lower base in FY15F, due to the FX translation loss.

Technical Analysis
Daily Chart
Valuation:
Our target price is revised to RM6.19 (S$2.04), adjusted for a stronger SGD, offset by a weaker TRY and rolling our valuations forward to FY16F/17F. We continue to adopt the sum-of-parts valuation methodology to reflect IHH's various operations and growth profiles across the different geographies.

Key Risks to Our View:
Economic slowdown. While healthcare is deemed as a defensive sector, private healthcare will, nonetheless, be impacted by a slowdown in the economy, since elective procedures can be deferred and patients may choose public hospitals as a lower-cost alternative. (Read Report)

Read Related Reports
1) IHH Healthcare - 3Q seasonally weak; expect strong 4Q by CIMB Research, published on 27 November 2015

2) IHH Healthcare - Strong lift from currency & pricing by Maybank Kim Eng Research, published on 26 November 2015

Source : DBS Group Research

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