IHH Healthcare - FY12 came in within our expectation

Period  4Q12/12MFY12

Actual vs. Expectations  The core 12MFY12 net profit of RM449m came in within our expectation at 105% of our full-year net profit forecast. However, it made up only 85% of the consensus full-year net profit forecast of RM530m.

Our core net profit excludes: 1) valuation gain on properties (RM164.2m), 2) gain from the sale of medical suites (RM216.2m), 3) forex gain (RM41.3m), 4) write-back on impairment loss (RM41.7m), 5) Fair value loss on acquisition (RM26.8m) and others (RM86.6m).

Dividends  No dividend was declared, as expected.

Key Result Highlights  QoQ, the 4QFY12 revenue rose 2% to RM1.5b due to higher inpatient admission. In Malaysia, inpatient admission rose 8.4% amid a flat average revenue per inpatient. In Singapore, inpatient admission rose 2% but was dragged down by a 3% decrease in the average revenue per inpatient. Inpatient volume in Novena average approximately 50 per day.

 Sequentially, the 4QFY12 EBITDA rose 19.5% thanks to savings in construction costs, which had reduced the development cost of the Novena medical suites. This led to the reversal of overaccruals of construction costs totalling RM26.7m. Losses at Novena were reduced by 31% from RM24m in the 3Q to RM16.4m in the 4Q due to a ramp-up in revenues which helped to offset overheads. We understand that Novena is expected to break even probably in FY13.

 Stripping out the 1) valuation gain on properties (RM31.6m), 2) gains from sale of medical suites (RM22.6m), 3) forex loss (RM1.0m), 4) write-back on impairment loss (RM41.7m), 5) fair value loss on acquisition (RM14.1m) and others (RM17.5m), 4QFY12 core net profit only rose 74% QoQ to RM132m. Outlook  IHH growth driver in the next five years would come from :  a) In Singapore, the first phase of Mount Elizabeth Novena Hospital comprising 150 of 333 beds (all single-bed rooms) capacity and 13 operating theatres has commenced operations in July 2012. The remainder of the second phase is projected to be operational in 2H2013.

 b) In Malaysia, PPL is undertaking expansion projects in four hospitals, Gleneagles Medical Centre Penang, Pantai Hospital Kuala Lumpur, Pantai Hospital Klang and Gleneagles. Greenfield projects, namely Gleneagles Kota Kinabalu, Pantai Hospital Manjung and Gleneagles Medini will add an estimated 500 beds to its network by 2014.

 c) In Turkey, Acibadem is undertaking expansion projects in two hospitals, Acibadem Sistina Skopje Clinical Hospital and Acibadem Maslak Hospital. The two greenfield development projects are Acibadem Ankara and Bodrum Hospital.  Acibadem Holdings Group has repaid approximately USD250m loan and various other short term loans when IHH and its 40% remaining shareholders recapitalise Acibadem Holdings. IHH borrowed USD180m to fund the group’s 60%-stake of Acibadem Holdings. We gather a interest savings of USD11m or RM34m will be reflected in FY13 of which we have already factored into our earnings model.

Change to Forecasts  No changes to our FY13 and FY14 forecasts.

Rating   Maintain MARKET PERFORM and SOP TP of RM3.51

Risks  Slower-than-expected commercial operation of greenfield and brownfield projects.

Source: Kenanga