IHH Healthcare

IHH Healthcare: (S$2.14) Lauded for its expansion drive and solid fundamentals

IHH Healthcare has been rated as conviction Buy by a foreign broker, citing its solid growth trajectory, well-diversified core markets, wide-margin focus, inelastic demand, robust balance sheet and strong management team.

The group’s core markets, Malaysia, Singapore and Turkey, are expected to grow on upcoming greenfield and brownfield expansion, with revenue upside arising from a 32% increase in beds by 2017, and margins to widen on rising operating leverage from maturing hospitals, as well as favourable FX.

On top of that, the healthcare player is also looking to add India and China to its home market list. The group’s acquisition of two premium-focused (Continental & Global) hospitals in India for RM1b earlier this year has increased its operating beds to 1,800 in the country, and it has room to increase capacity to 4,000 within existing facilities.

IHH recently announced a JV with Chinese partner, Broad Ocean to operate a 350-bed tertiary hospital in Chengdu, signalling its commitment to expand in China. In addition, its Gleneagles Hong Kong hospital is currently under construction and it is looking to ink an investment in Shanghai before the end of 2015.

Meanwhile, operations for the group’s 11 clinics in the mainland remain robust, with an estimated run rate of Rmb600m in 2015 and more than 30% EBITDA margin

Strong growth aside, IHH has a healthy balance sheet given its low leverage, with less than 2x net debt/EBITDA, and thereby provides much ammunition for the group to capitalise on faltering asset prices in the region.

IHH also has a well-balanced board, experienced management team and the most transparent staff-incentive scheme among Malaysian corporates.

While the group is vastly diversified across countries in Asia, the healthcare stock is undeservingly trading on par (25.6x FY15e EV/EBITDA) with smaller and less diversified peers from India and Thailand.

As such, the house continues to place a conviction Buy and a TP of RM7.80 ($2.57) on the counter.