By Sherilyn Goh
Private healthcare services provider IHH Healthcare Bhd is expected to see a boost in revenue and earnings growth, driven by the operations of new hospitals in several countries, the capacity expansion of its existing hospital chains, and the growth in Malaysia’s medical tourism industry, according to MIDF Research.
MIDF has upgraded its call for IHH Healthcare to “buy”, after revising upwards its target price to RM7.14 from RM5.96 previously, to take into account the positive impacts of the expansion exercise and the strategic operating environment on the group’s earnings.
“We expect IHH’s revenue growth in the next two years to stem from the operations of its new hospitals in Malaysia, Turkey, India and Hong Kong.
“Upon their completion, these new hospitals will add an estimated capacity of 1,720 beds with the bulk to originate from its future largest hospital, Gleneagles Hong Kong’s 500 beds,” said MIDF Research in its report published today.
IHH’s Malaysia operation is expected to have two new hospitals by end-2015, namely Gleneagles Kota Kinabalu and Gleneagles Medini. Having started its operations in the first quarter of 2015, Gleneagles Kota Kinabalu has operationalised 35% of its total capacity, with a current occupancy rate of between 40% and 50%.
Gleneagles Medini in Johor is due for completion by the fourth quarter of 2015, and is expected to further draw in the Singaporean clientele. Other upcoming hospitals include Acibadem Taksim in Turkey, Gleneagles Khubchandani in India and Gleneagles Hong Kong, with the latter being the most promising.
“Gleneagles Hong Kong will be the largest hospital ever built by IHH with 500-bed capacity. The pricing for the current premium healthcare in Hong Kong is also between 30% and 50% higher than its home market in Singapore.
“Accordingly, we expect IHH to be able to increase its earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin going forward,” noted MIDF Research.
With a presence across the Middle East, North Asia, and South Asia, the world’s second-largest healthcare operator group is also executing expansion plans across its home markets in Malaysia, Singapore and Turkey.
“Its Turkish operations is expected to add another 182 beds to existing hospitals via expansions of Acibadem Sistina Skopje and Acibadem Bodrum Phase 2. We expect this to increase the Ebitda margin for Turkey as these expansions are focused mostly for oncology and cancer treatments.
“For Malaysia, IHH will be expanding its Gleneagles Kuala Lumpur by 100 beds in 2015. Meanwhile, its Pantai Hospitals will be adding another 360 beds by 2017,” said MIDF Research.
Malaysia’s medical tourism earnings growth is expected at a compound annual growth rate (CAGR) of 18.5% from 2014 to 2020, supported by the increase in healthcare expenditures anticipated to grow at 11% CAGR within the next five years.
With a strong presence in Malaysia, the research house noted that IHH is likely to benefit from the thriving medical tourism industry, adding to the success of its Singapore operations.
“We are revising our earnings forecasts for financial year 2015 (FY15) and FY16 upwards by 14.9% and 15.6%. Our revisions are based on the expected higher Ebitda margins from its Turkey operations, capacity increase in its home markets, and strategic locations which are suitable for medical tourism.
“We upgrade our recommendation to ‘buy’ with a higher target price of RM7.14 per share,” added the research house.
At 11.44am, IHH Healthcare was trading flat at RM6.15, its one-year high.
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