IHH Healthcare
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Mala ysia Company Guide IHH Healthcare Version 14 | Bloomberg: IHH MK; IHH SP | Reuters: IHHH.KL; IHHH.SI Refer to important disclosures at the end of this report DBS Group Research . Equity 2 Mar 2020 BUY A sneeze, not the flu Last Traded Price ( 28 Feb 2020): RM5.70 (KLCI : 1,482.64) Maintain BUY, TP of RM6.40. We maintain our BUY rating on Price Target 12-mth : RM6.40 (12% upside) IHH Healthcare (IHH) and target price (TP) of RM6.40. We remain positive on IHH’s growth plans, with a pipeline of new Last Traded Price ( 28 Feb 2020): S$1.87 (STI : 3,011.08) hospitals in China and potential escalation in expansion Price Target 12-mth : S$2.13 (14% upside) momentum in India despite near-term headwinds and gestation Analyst period. Trading 1 standard deviation (SD) below of its historical Rachel TAN +65 6682 3713 [email protected] average, we believe potential headwinds are priced in. Andy SIM, CFA +65 6682 3718 [email protected] Where we differ. Tapping into 2 largest economies in Asia with What’s New the highest growth potential with platforms in China and India. • FY19 core net profit fell -10% y-o-y; revenue and IHH’s medium-term outlook is bright while it rides out its near- EBITDA rose 34% y-o-y and 23% y-o-y on constant term headwinds and gestation period for the new hospitals. In currency addition, with a potential strong platform in India and another • Gleneagles Chengdu opened in October 2019; in China, IHH now has exposure to the two largest economies in obtained Yibao approval Asia with the highest growth potential in the healthcare sector. We believe this further elevates IHH’s long-term potential. • Gleneagles Shanghai’s opening delayed until COVID-19 outbreak stabilises Potential catalysts: Shorter gestation period for new hospitals, • Declared FY19 dividend of 4 Scts organic growth and new brownfield or greenfield hospitals. FY19 results impacted by impairment loss and reversal of Price Relative deferred tax assets. IHH posted FY19 headline net profit of RM552m (vs RM628m in FY18) largely due to impairment loss and reversal of deferred tax assets. Core profit fell 10% y-o-y. Key result highlights: i) non-Turkish Lira (TRY) debt reduced to EUR226m, ii) Gleneagles Chengdu opened in October 2019 and obtained Yibao approval, iii) Gleneagles Shanghai to open when COVID-19 situation stabilises. Forecasts and Valuation Valuation: FY Dec (RMm) 2018A 2019A 2020F 2021F We maintain our BUY rating and TP of RM6.40, based on sum- Revenue 11,521 14,912 15,500 16,546 of-parts (SOP) valuation methodology. The stock is trading at EBITDA 2,496 3,170 3,407 3,692 Pre-tax Profit 752 1,043 1,430 1,629 18x FY19F enterprise value (EV)/ earnings before interest, tax, Net Profit 628 551 963 1,048 depreciation and amortisation (EBTIDA), 1SD standard Net Pft (Pre Ex.) 628 551 963 1,048 deviation below its historical average Net Pft Gth (Pre-ex) (%) 51.1 (12.1) 74.7 8.8 EPS (sen) 7.57 6.29 11.0 12.0 EPS Pre Ex. (sen) 7.57 6.29 11.0 12.0 Key Risks to Our View: EPS Gth Pre Ex (%) 50 (17) 75 9 i) Economic slowdown; ii) weaker-than-expected performance, Diluted EPS (sen) 6.53 5.29 9.98 11.0 especially in new markets; iii) government policy changes; iv) Net DPS (sen) 3.00 4.00 4.00 4.00 acquisitions that may moderate near-term earnings growth. BV Per Share (sen) 265 255 261 268 PE (X) 75.3 90.7 51.9 47.7 PE Pre Ex. (X) 75.3 90.7 51.9 47.7 At A Glance P/Cash Flow (X) 25.5 20.4 16.6 19.0 Issued Capital (m shrs) 8,774 EV/EBITDA (X) 22.7 18.9 17.1 15.3 Mkt. Cap (RMm/US$m) 50,012 / 11,869 Net Div Yield (%) 0.5 0.7 0.7 0.7 Major Shareholders (%) P/Book Value (X) 2.1 2.2 2.2 2.1 Net Debt/Equity (X) 0.1 0.2 0.1 0.0 Mitsui & Co 32.9 ROAE (%) 2.9 2.5 4.3 4.5 PULAU Memutik Ven Sdn Bhd 26.0 Central Depository Pte Ltd 7.5 Earnings Rev (%): (6) (10) Consensus EPS (sen): 13.0 15.8 Free Float (%) 21.9 Other Broker Recs: B: 14 S: 1 H: 6 3m Avg. Daily Val (US$m) 5.6 Source of all data on this page: Company, DBS Bank, GIC Industry : Health Care / Health Care Equipment & Services Bloomberg Finance L.P. ed: JS, sa: YM, PY, CS Company Guide IHH Healthcare WHAT’S NEW A sneeze, not the flu FY19 results impacted by impairment loss and reversal of 4Q19 revenue and EBITDA increased +21% y-o-y and 25% y- deferred tax assets. o-y respectively; constant currency (ex-MFRS 16) revenue and EBITDA rose +22% y-o-y and 13% y-o-y respectively. IHH FY19 recorded headline net profit of RM552m (vs RM628m in FY18). This was below our estimates, mainly due 4Q19 EBITDA margins (ex-PLife REIT) improved by 1.3p.p q-o- to impairment loss of RM200m on Global Hospital, India q to 22.9% (vs 21.6% in 3Q19). EBITDA margins (ex-MFRS recognised in 4Q19 and RM67.2m reversal of deferred tax 16) fell by 1.6p.p q-o-q to 20% from 21.5% in FY19. EBITDA assets. The higher net profit was largely due to; i) lower margins (ex-new hospitals; ex- PLife REIT) improved q-o-q to foreign exchange (forex) translation losses partly from TRY 29% (vs 26% in 3Q19 and 26% in 4Q18). The improved that stabilised in 9M19 from a sharp depreciation in 3Q18, ii) EBITDA margins were mainly led by Singapore and Turkey. partly from forex translation gains following the successful restructuring of non-TRY debt to only c.US$250m, iii) offset by IHH declared higher FY19 final dividend of 4Scts (vs 3Scts in higher interest expenses (estimated to have more than FY18). doubled) from higher borrowings to acquire Fortis Healthcare. Key operational highlights Excluding exceptional items, core profits fell -10% y-o-y to RM921m mainly due to; i) higher net interest expenses, ii) • Gleneagles HK occupancy dipped to 50% (vs 58% in higher depreciation (+18% y-o-y ex-Malaysian Financial 3Q19) with impact from HK demonstrations. Reporting Standard 16 (MFRS16), iii) Fortis’ tax expense • 3 key markets continue to deliver growth. increased by RM67.2m mainly due to reversal of deferred tax • Gleneagles Chengdu obtained Yibao approvals; assets in YTD19, iv) forex losses and fair value exchange losses Gleneagles Shanghai opening likely to be delayed due to on forward exchange contracts compared to gains recognised COVID-19. in FY18. These were partially mitigated by one-off items • New 3-prong strategy from new CEO – i) cluster strategy including reversal of RM21.8m accrued interest on prior years’ in metro areas, ii) review of portfolio of assets including tax payable and RM28.5m of trustee management fee income divestments and a focus to improve capital returns, iii) from disposal of RHT asset. cost savings. FY19 revenue rose +29% y-o-y to RM15b with growth mainly Gleneagles HK EBITDA losses widened on additional staff from Fortis. Excluding Fortis, revenue increased +6% y-o-y ramp-up; occupancy fell to 50%; COVID-19 and HK from all key markets; Singapore (+10% y-o-y), Malaysia demonstration led to delays in non-essential procedures. (+15% y-o-y), North Asia (+21% y-o-y largely from Gleneagles Gleneagles HK EBITDA losses increased q-o-q to RM49.4m (vs HK), and Turkey (+2% y-o-y). On constant currency basis, RM39.4m in 3Q19) and RM34.5m in 2Q19 (RM39.4m in FY19 revenue jumped +34% y-o-y. 4Q18) mainly due to additional staff to ramp up its clinical services. Occupancy fell to 50% on 150 operational beds vs FY19 EBITDA rose +34% y-o-y to RM3.3bn, in line with our 58% in 3Q19 and above 60% previously (62% in 2Q19 and and consensus estimates, mainly on good underlying 68% in 1Q19). HK demonstrations and the COVID-19 operational performance, contributions from Fortis and impact outbreak have partly impacted non-urgent and non-essential of MFRS 16 adjustments. EBITDA growth was largely from procedures and services. Singapore (+29% y-o-y), Malaysia (+17% y-o-y), Turkey (+38% y-o-y) and reduced losses from Gleneagles HK (-12% Singapore – continues to deliver good growth. In 4Q19 and y-o-y), partially offset by start-up losses from Gleneagles FY19, revenue from IHH’s Singapore operations grew 8% and Chengdu, estimated at c.RM42.5m. On constant currency 10% y-o-y respectively. Both APRIA and inpatient volumes basis and ex-MFRS16 impact, EBITDA rose +23% y-o-y. continued to grow moderately at 4.3% y-o-y and 1.6% y-o-y in 4Q19. On a constant currency basis, revenue and EBITDA IHH’s 4Q19 headline net profit fell to RM41m (vs RM509m in grew 8% y-o-y and 32% y-o-y respectively while EBITDA 4Q18) mainly from forex translation gains recorded in 4Q18 margins improved by 5.4p.p. q-o-q partly from the impact of on TRY rebound and impairment loss of Global Hospital. Core MFRS-16. Foreign patients, comprising 25% of 4Q19 profits fell 15% y-o-y on higher financing costs (+12% y-o-y), Singapore revenue, was stable q-o-q (vs 26% in 2Q19 and Fortis’ reversal of deferred tax assets and forex and fair value 23% in FY18).