SINGAPORE (July 5): Maybank Kim Eng Research is keeping healthcare services provider IHH Healthcare on “hold” with a marginally lower target price RM6.15 ($1.98), from RM6.17 previously.
This is due to an expected increase in costs from Gleneagles Hong Kong (GHK), which started operations in March and is ramping up to its full opening in 3Q17.
In a Wednesday report, Maybank analyst John Cheong says GHK should take between 12 and 18 months to reach EBITDA breakeven due to “start-up scale, operating model, and back office costs”.
“We note that the street might be too optimistic on the earnings forecasts,” Cheong adds.
Looking ahead, Cheong says IHH Healthcare will likely look to Greater China and India to drive further growth in the future.
“Key growth markets in future will be Greater China and India,” says Cheong.
IHH Healthcare in June broke ground for the 450-bed Gleneagles Shanghai Hospital, which is slated to open in 2020.
The group also intends to progressively open the 250-bed general hospital, Gleneagles Chengdu, in 2018, as well as the 70-bed obstetrics and gynaecology (O&G) hospital, Gleneagles Nanjing, in 2019.
See: IHH Healthcare breaks ground for Gleneagles Shanghai Hospital
“Greenfield expansion strategy will be adopted in China given the easy access to land, short construction period, and lack of quality private hospitals,” says Cheong.
Meanwhile, the analyst says IHH Healthcare is likely to adopt an M&A expansion strategy in India due to difficulties in land acquisition and the availability of good hospitals.
As at 11.22am, shares in IHH Healthcare are trading half a cent lower at $1.88.
