INVESTORS hoping for a significant jump in the share price of IHH Healthcare Bhd will likely be disappointed.
Despite having posted surprisingly impressive quarterly earnings over the week, market observers believe the rise in the share price of IHH will likely be at a measured pace.
IHH's shares closed at RM3.20 on volume 16.3 million on Thursday. That represented a nine sen gain from Tuesday when the company unveiled its financial results for the second-quarter ended June 30.
IHH's second-quarter net profit showed an impressive increase of more than five times to RM403.54mil from the corresponding period last year. Earnings per share (EPS) rose to an impressive 6.51 sen from 1.74 senin the same quarter last year.
Turnover was more than three times higher at RM2.7bil for the second-quarter, compared with RM816mil for the preceding year's corresponding period.
For the first six months of 2012, IHH's net profit stood at RM527.4mil, with an EPS of 8.63 sen, compared with a net profit of RM178.5mil and an EPS of 4.97 senin the same period last year. Turnover of the company for the first half rose to almost RM4bil from RM1.7bil a year earlier.
No doubt, such a trend underscores the promising future and potential of IHH - the second-largest listed healthcare services provider by market value in the world (and the largest in Asia-Pacific).
“While earnings have received a huge boost from one-off items, IHH's core segments have exhibited decent growth, led by its hospitals in Malaysia and Singapore,” Public Investment Bank analysts comments about IHH's results in their report.
Following IHH's recent financial results announcement, some analysts have upgraded their target price for IHH. But, on average, the 12-month target price for IHH based on a Bloomberg poll of 14 analysts was only higher by one sen at RM3.40, compared with RM3.39 just days ago.
Not surprisingly, according to analysts, at its present price, IHH's shares are considered to be rather “expensive” when compared to the valuation of its global peers.
At RM3.20 per share, IHH trades at more than 40 times its estimated earnings for 2012. In comparison, its peers on average trade at around 25 times their earnings.
IHH made a successful dual listing on Bursa Malaysia and Singapore Exchange in July. At an initial public offering (IPO) price of RM2.80 in Malaysia and S$1.11 (RM2.77) in Singapore, IHH's flotation raised more than RM5bil in total gross proceeds.
IHH's flotation was the third largest IPO in the world so far this year, after Facebook Inc and Felda Global Ventures Holdings Bhd (FGVH).
Only IHH and FGVH are trading above their IPO prices, while Facebook has tanked significantly despite all the hype about its IPO. IHH in Malaysia and Singapore is trading above 13% to 14% of its IPO prices, while FGVH is trading at 10% higher than its IPO price.
Facebook, on the other hand, is currently trading at 50% below its IPO price.
IHH has 22 cornerstone investors, comprising local and international institutional funds as well as international sovereign wealth funds. They include Malaysia's Employees Provident Fund (EPF), Permodalan Nasional Bhd and Lembaga Tabung Haji; and international investors like BlackRock Inc, Capital Investment Inc, Kuwait Investment Authority, and the Government of Singapore Investment Corp Pte Ltd.
At present, IHH is majority-owned by Malaysia's state investment arm, Khazanah Nasional Bhd, which has a 45.7% stake in the company. Japan's Mitsui & Co Ltd is the second-largest shareholder in IHH, with a 20.48% stake.
According to some market observers, IHH is seen as an entity that has very strong backing because of the list of prominent institutional fund managers that it has as investors. This factor, they argue, can help attract and sustain interest in the counter.
“Some of IHH's investors, especially those linked to the Malaysian government, are unlikely to sell down their shares significantly due in part to strategic reasons,” an analyst tells StarBizWeek.
“Such stability' will likely encourage cornerstone investors to stay invested in IHH even at the end of their lock-in' period,” he adds.
IHH, which has a market capitalisation of RM25.4bil, is one of the 30 largest listed companies on the Main Market, and qualifies as a constituent of the FTSE Bursa Malaysia KLCI since last month.
A fund manager says that the inclusion of IHH as a component stock of the local bourse index will also help inspire institutional investors to stay invested in the company.
“Holding onto a component stock helps these investors to benchmark their performances against the equity market index,” he explains.
In general, IHH has many good things going for it.
“For a start, the company is in a good industry; hence, its growth prospects are good,” an analyst explains.
BIMB Securities Research analyst Thong Pak Leng, in his report, says: “We believe the aggressive plan to increase its hospital beds by more than 60% over the next three to five years should sustain the group's earnings growth.”
IHH boasts of a large network of operations spanning across eight countries. It has more than 4,800 beds in 30 hospitals. And the group has reiterated its intention to add over 3,300 hospital beds in the next few years.
In a recent report, DBS Vickers Securities argues that industry trends in general are working in the favour of IHH. These trends include an ageing population; developing healthcare markets in Asia; rising affluence in the region, which is expected to drive demand for quality healthcare; and increasing medical tourism in the region.
Most analysts, however, argue that all the positives of IHH have already been “priced in” and reflected in its current share prices. That explains why most analysts have not significantly raised their target prices for IHH.
“I don't see much catalyst for IHH's share price to rise significantly, at least, not in the medium-term,” an analyst says.
Needless to say, despite having so many good things going for it, there are still risks that IHH has to contend with. These include intensifying competition within the industry, the failure of the company to bring to fruition its expansion plans, economic weakness that could affect demand for its services and higher operating costs that could eat into its margins.
Another disadvantage is that IHH does not have a clear dividend policy.
For IHH, no analyst is recommending investors to sell. In Bloomberg's poll, 10 analysts have a “buy” call on IHH, while four have a “hold” call on the counter.
“IHH is a long-term investment,” an analyst explains.
“It's not for one who expect immediate and significant capital gains in the short term,” he adds.
IHH bears RM1.47b forex risk
KUALA LUMPUR, Sept 1 – Newly-listed IHH Healthcare Bhd will potentially be burdened by its Turkish arm Acibadem Holdings’ debt amounting to US$460.7 million (RM1.47 billion), The Edge Business and Financial Weekly reported today.
IHH, which is the second largest listing in Malaysia this year after Felda Global Ventures Holdings Bhd, has a 60 per cent stake in Acibadem.
State investment arm Khazanah Nasional, which is also IHH’s controlling shareholder, reportedly owns a 15 per cent stake in the Turkish healthcare company.
Acibadem’s loans in the US currency exposes it to the unstable US dollar-Turkish lira exchange rate, which has already caused it to lose RM54.5 million in 2010 and RM350.3 million in 2011.
Both the 2010 and 2011 foreign exchange (forex) losses took place before IHH bought its shares in the Turkish group.
According to the weekly, IHH’s financial statements published Acibadem’s pre-tax earnings of RM96.86 million, but did not show its losses.
Acibadem had reportedly lost RM27 million after the US dollar’s value against the Turkish lira increased by 1.4 per cent, causing a slight net loss despite an improvement in its performance.
Acibadem's loan of US 460.7million (RM1.47billion) consists of a US$257.1 million (RM822.72 million) payment due in 2015, and a US$203.6 million (RM651.52 million) amortised loan that needs to be repaid until 2018, the paper reported.
The weekly reported IHH’s financials as saying it is “exposed to currency fluctuations and is actively monitoring and deliberating avenues to manage this risk.”
IHH also had a strong performance in the second quarter with a net profit of RM403.5 million.
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