By Ranjit Singh
THE world’s second-biggest healthcare operator by market capitalisation, IHH Healthcare Bhd, registered a net profit of RM236.34 mil in its third quarter ended Sept 30, 2019 from a net loss of RM104.07 mil a year ago on the back of higher revenue of RM3.79 bil versus RM2.84 bil.
According to MIDF Research, the results were within its and consensus expectations, accounting for 61% and 60% of full FY19 earnings forecast respectively. The research house said in its results note on Dec 2, that it expected the healthcare operator to post stronger results in 4Q as that has traditionally been its strongest quarter.
Parkway Pantai’s Singaporean and Malaysian hospitals have been the company’s best cashflow-generative operations. Historically, these two markets contributed about 60.0% of the group’s EBITDA. In 3QFY19, both markets continued to support the group’s overall performance with total revenue growth of 13.9% yoy.
The inpatient admission at both these units grew by 12% yoy to 77,506 patients during the quarter. Revenue intensity per inpatient for both markets rose by 3.5% yoy and 4.3% yoy respectively. The increase was due to strong organic growth from existing hospitals and higher contribution from medical tourism.
MIDF adds that the Malaysia operations recorded an increase in foreign patients of 28% yoy. The research house says the acquisition of Prince Court Medical Centre will contribute positively to the segment’s earnings post completion of its acquisition in 1QFY20.
Meanwhile, IHH’s Turkish operations under Acibadem witnessed a marginal drop in 3QFY19 revenue due to a drop in local patients (from social insurance scheme) at its non-Istanbul hospitals. This resulted in its overall inpatient admission declining by 6.1% yoy.
However, revenue intensity per inpatient rose by 12.3% yoy due to an upward price revision imposed on private insurance and out-of-pocket patients. The increase was also attributed to more complex cases taken and an uptick in foreign patients.
Reducing non-lira exposure
The company had also converted some of its non-lira debts to lira debts to mitigate the effects of currency fluctuations. IHH had refinanced about US$170 mil equivalent of non-lira debt and swapped about 40% of it into lira debt in July.
Presently, Acibadem’s non-lira exposure is at US$250 mil compared to US$700 mil in FY18. According to MIDF, the management is targeting to reduce this to below US$200 mil by year-end.
IHH’s recent acquisition of Fortis in India has remained profitable for the third consecutive quarter.
There are 14 buy, six hold and one sell recommendations on the counter among analysts polled by Bloomberg. The consensus target price for the company is RM6.23. The counter closed at RM5.40 on Dec 2.
K&N Kenanga is the only research house with a sell recommendation, citing the tough operating environment in India as one of the main reasons for its call.
The research house has raised concerns over issues at Fortis, including an auditor’s qualified opinion on its FY18 audit report, potential risk of provisions and lapses in internal controls which could lead to regulatory probing. It has highlighted the execution risk of the company as being high.
K&N Kenanga has a RM4.70 price target for IHH.
MIDF is more bullish on the company, having a target price of RM6.78. It says while IHH faces legacy issues in the form of the weak lira and in the Fortis business, it is confident of the group’s ability to respond to these challenges. Management has taken active efforts to reduce the exposure on non-lira-denominated borrowings while adopting a disciplined turnaround plan for Fortis.
MIDF adds that the strong cashflow generative markets such as Singapore and Malaysia will continue to support the group’s performance in the near term. IHH’s balance sheet remains robust with a net gearing of 0.15x premised on a strong cash position of RM4.6 bil.
