IHH Healthcare’s dividend potential fails to excite
KUALA LUMPUR: Despite IHH Healthcare Bhd’s plans to announce its dividend policy by the fourth quarter this year, analysts are not excited about the stock and many have maintained their hold and sell calls.
This came shortly after the private healthcare group released its second quarter (Q2) results last week, which saw its underlying revenue and earnings before interest, taxes, depreciation and amortisation (Ebitda) grow by 14% and 20%, respectively, year-on-year while its profit after tax and minority interests (Patami) increased by 60%.
IHH managing director Dr Lim Cheok Peng confirmed the group’s dividend policy announcement in a media briefing last week after hinting at it in June this year. “The board will issue a dividend policy in the fourth quarter,” he said after announcing the group’s Q2 and first half results for FY13.
On Aug 28, Alliance Research, RHB Research Institute, and AmResearch issued hold and neutral calls for IHH with target prices of RM3.60, RM3.87 and RM3.80, respectively. Only Alliance Research increased its target price from RM3.40 while the other two did not change their fair value estimates.
On the same day, Hong Leong Investment Bank, BIMB Securities, Citi Research maintained their sell call with target prices of RM3.29, RM3.03, and RM2.85, respectively.
Most analysts are weighing the group’s long-term growth against the stock’s rich valuation and potential risks to its earnings.
“We like IHH’s franchise, strong management track record and improving fundamentals but valuations remain unattractive,” says Citi Research analyst Low Horng Han in his report.
The stock is currently trading at a price-earnings ratio (PER) of about 41 compared to 23 to 28 for its peers.
Long-term growth prospects
On the surface, the IHH group’s revenue for Q2 fell 38% to RM1.68 bil from RM2.69 bil last year while Ebitda dropped 29% to RM419.6 mil from RM587.6 mil last year.
However, this is due to the one-off recognition of the sale of medical suites, which has contributed RM1.2 bil in revenue, RM238.4 mil in Ebitda and profit after tax of RM193.6 mil to the group’s Q2FY12 earnings.
These are attributed to an increase in patient volume in Singapore and Malaysia as well as revenue contributions from two out of the group’s three new hospitals that were opened last year.
IHH chief financial officer Tan See Haw says the group’s Singapore Mount Elizabeth Novena hospital which opened in June 2012 has contributed a small Ebitda and has achieved break-even point one quarter earlier than expected.
Its Acibadem Ankara hospital in Turkey has started to show positive Ebitda in Q2 and the Acibadem Bodrum hospital has reduced its Ebitda losses quarter-on-quarter.
The increase of inpatient admission also contributed to the group’s revenue and Ebitda growth, says Tan. The group’s hospitals in Singapore, Malaysia and Turkey recorded a 7.3% growth in collective patient admission in Q2.
Risks and rewards
Potential risks to the group’s earnings this year are delays in hospital construction, higher financing costs due to the appreciation of the US dollar, as well as a potential slowdown in medical tourism in Turkey due to Syria’s unrest, says Hong Leong Investment Bank (HLIB) analyst Tan J Young.
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