Maybank Kim Eng Research is keeping IHH Healthcare on “hold” but cutting its target price by 11% to MYR5.80 ($1.83), from MYR6.52 previously. In a report on Friday, Maybank analyst John Cheong says IHH is seeing healthy topline growth, but core earnings have been hit by start-up costs.
We cut our EPS by 6-16% to account for higher start-up costs and longer gestation periods for new hospitals, says Cheong. Pre-opening expenses of Gleneagles Hong Kong had surged 95% q-o-q to RM38 million ($12 million) in the fourth quarter ended Dec 31. The costs are expected to drag on earnings until six months after the opening of the hospital in first half 2017.
Due to the substantial costs, we expect FY17E earnings to be flat, before picking up in FY18E when the hospital operation stabilises,says Cheong. IHH will be adding three new hospitals with around 1,100 new beds in 2017, according to Cheong.
On top of 500-bed Gleneagles Hong Kong, IHH is also expected to open the 325-bed Acibadem Altunizade in Istanbul in 1H17. In addition, the 350-bed ParkwayHealth Chengdu Hospital is scheduled to be launched in second half 2017.
One positive in the results was FY16 revenue, which increased 19% y-o-y driven by organic growth and newly acquired entities in India and Bulgaria. Three new hospitals, in Hong Kong, China and Turkey could drive revenue growth ahead,” says Cheong. However, Cheong opines that IHH is “not cheap”. The stock is trading at 60x FY17E PE, compared to 34x for its regional peers. As at 12.23am, IHH Healthcare is trading 6 sens lower at MYR5.85 on Bursa Malaysia while the stock is trading 2 cents lower at $1.91 on the SGX.
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