IHH Healthcare poised for rapid growth

Medical travellers, healthcare outsourcing among its catalysts

PETALING JAYA: The “rich” valuation for IHH Healthcare Bhd is justified as the healthcare provider group has strong earnings and market growth prospects over the next five years, according to managing director Dr Lim Cheok Peng.

Lim reiterated that in the pipeline were more than 3,300 new beds to be delivered and 17 hospital developments, which would be completed by end-2016.

Known as Asia's biggest hospital operator, IHH presently operates over 4,900 beds in 30 hospitals as well as clinics and ancillary healthcare business across eight countries.

“As we continue this journey, how will IHH look like in another three to five years? It will be a 47-hospital group with more than 8,000 beds,” Lim told StarBiz in a telephone interview.

He highlighted that this would obviously result in a significant impact on the group's annual revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) by end-2016.

For the financial year ended Dec 31, 2011 (FY11), the group posted a pro-forma revenue of RM5.2bil and EBITDA of RM1.03bil. Its net profit was RM132mil.

IHH is en-route to a dual listing on the Main Market of Bursa Malaysia and the Main Board of Singapore Exchange Securities (SGX) tomorrow. The group's US$2bil (RM6.3bil) initial public offering at RM2.80 per share will be the third largest IPO in the world this year after Facebook Inc and Felda Global Ventures Holdings Bhd.

In a recent report, JF Apex Securities said its fair value for IHH was RM3.00 per share, based on 20 times FY13 enterprise value (EV) over EBITDA or an implied 55% premium to the average FY13 EV/EBITDA of its regional peers of 13 times, in view of IHH being the world's second largest healthcare company and its relatively larger market capitalisation. Meanwhile, ECM Libra has a hold call on IHH's stock and target price of RM2.94 per share, based on sum-of-parts valuation.

The research unit said given the high predictability, stability and captive earnings streams in the healthcare services, it had used 2013 EV/EBITDA valuation methodology in its sum-of-parts valuation.

Lim also pointed out that when Parkway Holdings Ltd was taken private two years ago, its valuation was 39 times the company's earnings in FY09.

This was an expensive endeavour considering that its peers on the SGX were trading at an average price-to-earnings ratio of 23 times for FY09.

“At that time, we (Parkway) were country centric as the bulk of our business came from Singapore. Today, at IHH, 38% of our revenue contribution is from Turkey, with 36% from Singapore and 25% from Malaysia. We are in eight countries today, and have mitigated our risks,” said Lim.

IHH has leading market positions in its home markets of Malaysia, Singapore and Turkey.

According to JF Apex Securities, IHH had a 43.9% of market share in Singapore as of FY11.

Its market share in Malaysia and Turkey was 15.1% and 5.2% respectively as of FY10.

The group, which is controlled by Khazanah Nasional Bhd, also has healthcare operations and investments in China, India, Hong Kong, Vietnam, Brunei and Macedonia.

Lim also said the group was looking at higher market penetration in Singapore, after recently opening its 333-bed Mount Elizabeth Novena Hospital.

“We are also increasing the number of our clinics in Singapore. At the moment, we have 58 clinics. With better penetration, we hope to divert more patients into our system.”

IHH is also exploring the potential of a government outsourcing programme for medical services in Singapore.

“For example, the prison contract. Basically, The volume of work for public hospitals has increased in Singapore, and the demand is more than supply. The government is now tapping on the private sector. Recently, they leased 30 beds from one of our hospitals.”

Lim said such a government outsourcing programme could turn out to be a fairly substantial revenue contributor to IHH in the future.

“We are not sure yet. This is only the start. There is always the potential.”

Lim also pointed out that another area of growth was medical tourism.

He said foreigners consisted of about 30% to 35% of IHH's patient volume in Singapore and contributed about 40% to 45% of total revenue.

“In Malaysia and Turkey, foreigners are about 5% to 6% of our patient volume, and contribute 10% of total revenue,” he said, adding that the bulk of foreign patients in Singapore and Malaysia (under medical tourism) were from Indonesia.

“In Turkey, medical travellers are very prominent now. We are seeing patients from Libya, Iraq and also the Balkans. These are the areas where the healthcare infrastructure was destroyed because of war or conflict.”

Concerning dividends, Lim said the group does not have a dividend policy.

“However, if you look at the track record of Parkway, when it was listed... even though we did not have a dividend policy.,, we gave dividends on a quarterly basis.”

“If we do not need the money, we will give it back to shareholders. I think shareholders have better use for the money than us.”

mind you this is tomorrow , maybe tomorrow green cause everyone comeback to look forward to this one?