Thursday, July 18, 2013

IHH - recession proof industry but with ove pricing


Demand for healthcare services is widely regarded to be quite a recession proof. Importantly, future demand growth appears to secure and is underpinned by myriad factors. These include the rise in lifestyle related diseases, growing awareness of and improved access to quality care, as well as longer life spans and an ageing population.

The expected growth in demand for healthcare services will exert an increasing burden on the public healthcare system which, in turn, is very likely to drive more demand towards the private sector. In tandem, private healthcare services are increasingly affordable to the general public supported by rising per capita income as well as the increasing awareness and adoption of medical insurance, particularly among the younger generation.

All these factors bode well for private healthcare operators such as IHH, KPJ Healthcare.

IHH has a significantly wider geographical footprint. The company operates the largest private healthcare network in Singapore, is the second largest operator in Malaysia and has a strong presence in Turkey following the acquisition of Acibadem early 2013. It currently (July 2013) operates nearly 5000 licensed beds in these three markets combined.

Additionally, the company has a 11% stake in Apollo Hospitals Enterprise, one of India’s largest private healthcare operators. It also operates the 510 bed tertiary care Apollo Gleneagles Hospital through a 50:50 JV with Apollo.

Its strategy is multi pronged, and it includes the development of Greenfield projects, expansion of existing facilities as well as undertaking consultancy agreements as the first step in penetrating new markets. The latter category includes in Vietnam in 2013 followed by Shanghai, China and Abu Dhabi in 2014.

The company has a string of new hospitals and expansions currently (July 2013) under construction in Turkey by 2015.

In Malaysia, it is expected to expand by 2016 from both existing hospitals and Greenfield projects.

One of IHH’s biggest investments in the pipeline is the 500 bed Gleneagles hk Hospital, targeted for completion by late 2016. The company has a 60% stake in the project estimated to cost rm2.1 billion.

The projects mentioned above and organic growth will underpin continued growth for the company gong forward. Expecting earnings to strengthen over the coming quarters bolstered by better contributions from newly opened hospitals including Mount Elizabeth Novena in Singapore.

IHH shares are currently (16 July 2013) trading at well above market average valuations – at roughly 52.5 and 43.3 times estimated earnings for 2013 and 2014 respectively.

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