SINGAPORE (Aug 29): CGS-CIMB Research is maintaining its “add” recommendation on IHH Healthcare with a lower target price of RM6.63 ($2.21) compared to RM6.86 previously, even as the dual-listed Malaysian private healthcare operator’s 2H18 results missed expectations slightly.

This comes after IHH Healthcare reported 48% lower 2Q18 earnings of RM165.11 million from a year ago in the absence of a one-off divestment gain related to Apollo Hospitals which was recorded in 2Q17.

In a Wednesday report, analyst Ngoh Yi Sin notes that the group saw a comparatively stronger 2Q18 in terms of core PATMI, which would have been RM257 million or 198% higher y-o-y if not for exceptional items.

Still, the fact that 1H18 core PATMI missed full-year forecasts slightly by forming 43% of estimates has prompted CGS-CIMB to cut FY18-20F earnings per share (EPS) by 2.2-5.2% to reflect lower revenue assumptions, weaker margins and higher tax rate.

Ngoh also flags the weak Turkish lira as an ongoing concern for IHH considering the group’s exposure, even as Acibadem performed well in the latest financial period under review due to the recent rebound in medical tourism.

Nonetheless, she continues to see potential in Acibadem becoming less of a drag with forex measures put in place as well as narrowing EBITDA losses for Gleneagles Hong Kong (GHK) on the back of expanded service offering.  

“By targeting the Chinese market via mainland insurance partners and referral agents, GHK hopes to achieve faster EBITDA breakeven. Meanwhile, retrofitting of the Chengdu hospital and recruitment of doctors and support staff are both underway, and management expects to open 100 beds in the initial phase with no plans yet for Yibao (China’s national health insurance),” says Ngoh.

“Potential re-rating catalysts are faster GHK turnaround and successful de-risking of Turkey exposure. Poor overseas execution, unfavourable forex movements and regulatory changes could pose downside risks to our ‘Add’ call,” she adds.

As at 3:10pm, shares in IHH are trading at RM5.53 on KLSE and $1.84 on the SGX.