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IHH Slightly Expensive Despite Solid Q1 Growth And Good Future Outlook
Tradeable, Tradeable Ideas | 04 June 2014
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By: Lim Si Jie
Articles (169) Profile
  1. Robust, solid growth in revenue and earnings for IHH in Q1 2014.
  2. Overexposure to foreign exchange volatility is a problem that IHH has got to learn to deal with.
  3. Future outlook and prospects looks good for IHH given the aging global population

Strong Growth In Q1
IHH Healthcare Berhad announced robust key financial and operational growth for the quarter ended 31 March 2014.

The Group’s headline revenue for Q1 grew by 8 percent year-on-year (YoY) to RM1.8 billion from RM1.6 billion in the same period last year. It also registered double-digit growth in both its earnings before interest, taxes, depreciation, amortisation, exchange differences & other non-operational items (“EBITDA”) and profit after tax and minority interests (“PATMI”).

EBITDA increased by  11 percent YoY to RM436.5 million from RM394.2 million, while PATMI increased by 25 percent YoY to RM159.1 million from RM127.3 million.

The increase in revenue which IHH saw in Q1 2014 was driven by higher inpatient admissions and revenue intensity across the Group’s operations as well as the opening of Acibadem Atakent Hospital in January 2014.

The Acidadem Atakent Hospital opened in Istanbul, Turkey – a key market for IHH

EBITDA growth was driven by a combination of organic growth from existing operations and better operating leverage achieved from the ramping up of hospitals which were opened in FY2012, i.e. Mount Elizabeth Novena, Acibadem Ankara and Acibadem Bodrum.

Exposure To Volatility Of Foreign Exchange
IHH runs 33 hospitals as well as medical centers, clinics and other health-care businesses across nine countries including Vietnam, India and China.

As a company that spans its operations across different countries, IHH is susceptible to currency volatility. Its expansive geographical footprint across Asia as well as the Central and Eastern Europe, Middle East and North Africa (“CEEMENA”) regions causes translation differences in the Group’s balance sheet and income statement as well as affect the comparability of financial performance across periods.

IHH takes proactive steps to minimise such risks including borrowing in the functional currency of the operating entity or borrowing in the same currency as its foreign investment. IHH has Acibadem Holdings to monitor its liquidity position to hedge its cash flows by conserving hard currency receipts from medical travellers to service the debts and interest payments of its non-TL (Turkish Lira) denominated loans.

Outlook And Prospects
One thing which I like about IHH is its strong balance sheet and cash flow which will help to support its expansion plans. IHH is expected to continue registering earnings growth in 2014. The whole world, not only in Singapore and in Asia, is experiencing an aging population. Falling sick when we are old is the law of nature. Just like gravity, we cannot defy the law of nature. As the population ages, more people are going to require healthcare.

It is almost dead certain that the demand for healthcare services is going to grow significantly. However, the question remains whether supply will grow in tandem with that demand to meet the demand. At the current moment, I am still doubtful that the growth in supply is going to catch up to the demand for healthcare services. IHH will be able to capitalize on this and continue to grow its earnings as expected.

Price Action Analysis

IHH share price is heading towards its key resistance level since 2013 at $1.65. IHH has tried to break through the $1.65 resistance level several times in 2013 but failed to do so. Share price ended up bouncing back to a key support level at $1.42. Historical data shows that it is unlikely IHH would break through the $1.65 key resistance level. If IHH really fail to break through $1.65, it would become a self-fulfilling prophecy in itself.

It is wise to keep a close look out on IHH to see whether it can successfully break the barrier in the upcoming weeks. If IHH do not break the resistance level, short term investors might want to ride the downtrend for a neat profit. For the long term investors, either you wait for the anticipated breakout or you just have to be patient until IHH is at the key support level again at $1.42 before you even think about taking a long position.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

IHH Healthcare  1.850 -- --   
Business: One of the largest listed private healthcare providers in Asia and worldwide. [FY18 Turnover] Parkway Pantai (64.7%), Acibadem Hldgs (31.9%), IMU (2.2%), PLife REIT (1.2%).

Insight: May-19, 1Q19 revenue rose 27.6% as a result of the... Read More

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