IHH Healthcare - NDR on Growth Sustainability

Pursuing growth, managing risks
In a recent NDR, management shared with more than 10 institutional investors in Singapore its bed pipeline in fast-growing markets, sources of growth and funding. It also assuaged investors’ concerns over currency fluctuations, unrest in Turkey and more restrictive regulations in Malaysia. Maintain HOLD and SOTP TP of MYR6.35 as we believe the positives have been priced in, at 45x FY16 P/E.

HK in 2017, India & China from 2020
More than 3,000 new beds (+43%) are expected to sustain IHH’s growth. Hospitals opened in 2012-2015 will also be ramped up. The opening of Gleneagles Hong Kong (500 beds) in 1Q17 should contribute to mediumterm prospects. Management expects a quick ramp-up, based on HK’s demand/supply dynamics and superior pricing. The hospital will be Hong Kong’s first private hospital in three decades. Partnership with The University of Hong Kong should ensure a steady supply of doctors. Beyond 2020, expansion in China and India should lead growth. Strong cash flows in IHH’s home markets, especially Singapore, and a net gearing of less than 20% are expected to provide headroom for expansion.

Technical Analysis
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Managing currency, regulatory & political exposure
Volatile exchange rates in emerging markets and regulatory changes continue to pose challenges. To mitigate currency risks in Turkey, IHH hedges through hard currencies received from medical tourists. It believes its financing cash flows are well covered for the next three years. Moreover, the group generates c.50% of its PATMI from Singapore, whose currency is more stable. From 2017 onwards, HKD will be another operating currency but this is stable. To temper regulatory risks, IHH will partner well-connected parties, though it has yet to address new restrictions on foreign doctors practising in Malaysia, which affect its Gleneagles Medini. As for political risks, management highlighted that its Turkey operations are concentrated in Istanbul, “a safe haven where wealth is stored”. Constant-currency sales grew 16% YoY there in 3Q15. (Read Report)

Source : Maybank Kim Eng Research

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