IHH Healthcare

IHH Healthcare: Reported in-line 1Q13 results for core hospital operations, with 1Q13 earnings increased 4% to Rm127.3m, mainly due to stronger inpatient volumes and improvements in average revenue per inpatient admission, lower losses for Novena and full 3-months consolidation of its Turkish operations. However, overall EBITDA margin fell 0.9ppt y/y due to higher staff and operating lease costs as well as start-up losses at new hospitals. As flagged, the company adopted MFRS 10 reporting standard which consolidated the earnings of Parkway Life REIT (although IHH only owns 35.8% of the entity due to single control model) and equity accounting for its 50% JV stake in Khubchandani hospital in India (vs 100% consolidation previously). Operationally, IHH saw inpatient volume increase of 8%/2%/5% y/y and average revenue per inpatient admission of 3%/11%/-0.5% YoY across its hospitals in Singapore, Malaysia and Turkey. The strong inpatient volumes and sustained average revenue per inpatient admission in Singapore was commendable given the opening of Novena hospital. EBITDA losses at Novena narrowed significantly in 1Q13 to RM3m (vs RM15.6m losses in 4Q12) and management expects the entity generate positive EBITDA going forward. Post the restructuring of debt at Acibadem, the entity now accounts for 17% of PATMI in 1Q13 (vs -1% in FY12). According to DB estimates, IHH is currently trading at 22.8x forward adjusted average EV/EBITDA. At its DCF/SoTP-derived target price, DB value IHH at 25x FY13E adjusted EV/EBITDA, a 23% premium to its Asian peers. The premium is justified given IHH’s stronger EBITDA growth prospects over FY12- 14E (32% vs. peers’ 18%), dominance in its home markets, and its ability to grow through replicating its business model into new markets DB has a BUY rating, TP of $1.88.