IHH HEALTHCARE BHD
By RHB Research Institute
Fair Value: RM3.53
IHH’s third-quarter ended Sept 30 net profit of RM96.1mil (-19.1% year-on-year; +12.4% quarter-on-quarter) was below our and consensus expectations with nine-month core net profit of RM329.6mil accounting for 54% and 57% of our and consensus full-year estimates respectively.
Key variances were higher-than-expected nine-month depreciation and amortisation expense of RM293.3mil and RM50.5mil, compared with our full-year projection of RM311.8mil and RM43.1mil respectively, which we believe was mainly due to the opening of Mount Novena Hospital in end-July.
Excluding the sale of Novena’s medical suites amounting to RM1.21bil in the second quarter, third-quarter revenue of RM1.5bil came in flat quarter-on-quarter higher inpatient admissions (+1.3%) in Singapore due the opening of the new Mount Novena Hospital was offset by a 4.9% and 4.2% decline in inpatient admissions in Malaysia and Turkey respectively.
We believe this was mainly due to the Hari Raya holiday season and the Hungry Ghost Festival in Malaysia as well as the summer season in Turkey, which typically leads to a lower number of admissions, and a marginal decrease in complex treatment procedures.
This coupled with a RM23.9mil earnings before interest, taxes, depreciation, and amortisation (EBITDA) loss for the new Mount Novena hospital and a higher depreciation expense led to a 12.4% decline in third-quarter core net profit.
Despite remaining in the red for the quarter, EBITDA losses of the new Mount Novena Hospital continues to narrow to RM23.9m in the third quarter (from RM28.3mil in the preceding quarter) as a progressive ramp-up in operations helped offset against overhead expenses incurred in newly opened areas.
According to management, inpatient flow has improved to more than 500 admissions in the third quarter (from about 200 in the second quarter) and plans to turn operations EBITDA positive by mid-2013 remains intact.
The risks include: 1) a significant increase in medical insurance premiums, which could result in lower demand; 2) lower-than-expected patient numbers, if there is a serious disease outbreak (such as SARS or swine flu); 3) weaker-than-expected earnings from overseas operations; and 4) slower-than-expected turnaround in new hospitals.
We reduced our financial year 2012 (FY12) to FY14 earnings forecasts by 9.3% to 20.7% after increasing our FY12 to FY14 depreciation and amortisation expense by 4.5% to 35.2% per year and 77.4% per annum respectively.
Despite the cut in our numbers, we maintain our “outperform” call on IHH with an unchanged sum-of-parts fair value of RM3.53.
GENTING PLANTATIONS BHD
By Kenanga Research
Target price: RM8.30
GENTING Plantations’ first nine months period of the financial year 2012 (FY12) core net profit of RM240mil came in below the consensus but was broadly within our expectations.
It made up only 65% of the consensus’ FY12 forecast of RM371mil but was higher at 72% of our forecast of RM332mil.
We believe that the consensus may have overestimated the crude palm oil (CPO) price performance in the third quarter of FY12, which had weakened from September onwards due to an inventory surge.
Note that we have lowered our FY12 CPO price estimate to RM2,975 per tonne in our plantation sector update report on Oct 11.
There were no dividend announced as expected.
Year-on-year, the nine-month core net profit declined 30% to RM240mil as the average CPO price fell 8% to RM3,060 per tonne while the fresh fruit bunch (FFB) volume dropped by 7% to 932,071 tonne.
Cost of production is estimated to have increased by 15% due to the higher wage and fertiliser costs.
Quarter-on-quarter, the third-quarter core net profit jumped 27% to RM95mil as the impact of the FFB volume jump (38% higher to 380,815 tonnes) outpaced that of lower CPO prices (11% lower to RM2,858 per tonne).
The CPO price outlook has deteriorated for both the fourth quarter and the calendar year 2013.
With the cargo surveyors’ exports data for the first 25 days of November showing a decline by around 2%, we see a higher possibility now of Malaysian Palm Oil Board’s November inventory level registering another record high.
Our FY12 to FY13 estimated (FY13E) core net profit have been cut by 5% to 8% to RM313mil to RM381mil.
Our FY12E CPO price assumption has also been cut to RM2900 per tonne (from RM2975 per tonne) given the worse-than-expected CPO prices so far in the fourth quarter.
FY13E average CPO price assumption has been lowered to RM2850 per tonne (from RM3000 per tonne).
We have downgraded the stock to “underperform”. The fourth-quarter earnings could disappoint even more.
Note that the fourth-quarer average CPO price has been weak so far at RM2266 per tonne (21% lower quarter-on-quarter).
We have reduced our target price to RM8.30 (from RM9 previously) based on an unchanged forward price-to-earnings ratio of 16.5 times on the lower FY13E earnings per share of 50.3 sen (from 54.4 sen previously).
The risks involved would be better-than-expected CPO prices.