SINGAPORE (Nov 30): Analysts say IHH Healthcare’s 3Q18 headline loss of RM104 million ($34 million) did not come as a surprise, given the 30% q-o-q depreciation of the Turkish lira versus the US dollar.

Excluding these exceptional items, 3Q18 core PATMI would have been higher 146% y-o-y and 20% q-o-q at RM309 million.

And while 3Q18 revenue was flat, EBITDA improved 10% to RM616.8 million, mainly due to the ramp-up of Acibadem Altunizade hospital in Turkey. On constant currency terms, sales growth would have been stronger at 18% while EBITDA should have risen 23% y-o-y.

According to CGS-CIMB Securities’ analyst Ngoh Yi Sin, Acibadem was operationally stronger, recording 7.5% and 31.5% y-o-y growth in inpatient admission volume and average revenue per inpatient admission on the back of more complex cases, price adjustments and higher foreign load.

See: IHH Healthcare reverses into the red in 3Q on forex losses
“With the completion of its 30% stake purchase by end 4Q18 and pending regulatory approval, IHH will be able to repay its subordinated loan of US$250 million, and divest non-core assets to deleverage its balance sheet,” says Ngoh.

UOB KayHian says inpatient volume in Singapore was flattish although high revenue intensity of 8.0% y-o-y in 3Q18. Meanwhile, Malaysia enjoyed 3.3% y-o-y inpatient volume growth against 2.6% y-o-y revenue intensity.

In India, IHH’s hospitals saw inpatient volume fall 20.7% y-o-y, which UOB attributes to a team of doctors that collectively left the system. It has since been addressed with the hiring of new anchor doctors.

As for North Asia, Gleneagles Hong Kong continued to see decent bed occupancy of 50% and similar average bill size as Singapore. 3Q18 EBITDA loss narrowed y-o-y but widened q-o-q to RM49 million, due to new services and seasonality. Meanwhile, both Chengdu and Shanghai hospitals are on track to open in 2H19 and 2H20 respectively.

“Strong 3Q18 core net profit overshot street’s expectation, led by growth in all key markets,” says Maybank IB Research analyst Lee Yen Ling, “Maintain our FY18F EPS but reduce FY19-20F EPS by 15-22% as we incorporate for the soon-to-complete acquisitions.”

Maybank’s Lee says the stock has already priced in the negatives given its price has fallen by 22% in six months and is trading at 12-month forward PER of 43x compared to mean of 46x.

UOB says completion of the Fortis exercise and the subsequent turnaround throughout 2019 could catalyse IHH further. “Upgrade to ‘buy’ with a SOTP-based target price of $1.95.”

See: Khazanah selling $2.8 bil stake in IHH Healthcare to Mitsui in portfolio revamp

“Our model now reflects the 3Q18 results, a 31% contribution from Fortis Healthcare and a higher stake of 90% in Acibadem, leading to changes in our FY18-20F forecasts,” says Ngoh, “Our SOP-based target price dips slightly to RM6.40, even as we roll-over to end-CY19F valuation. Maintain Add.”

Year to date, shares of Singapore-listed in IHH are trading 10 cents lower at $1.84.