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to the private sector because
their professional rankings
can only be enhanced by
their performance in public
hospitals. Any doctor who
wants career advancement
would rather stay with a Class
3 (containing at least 500 beds)
public hospital. They prefer
the security and prestige of
state hospitals. In addition,
despite the Western media
reporting patient dissatisfaction
with public hospitals, private
hospitals have low social
recognition and, hence, only a
limited number of outpatients.
In general, the people believe
that doctors who are not
practicing in large public
hospitals are less qualified
than those who are. This is
evidenced by the following fact:
while almost half of China’s
hospitals are private, around
90% of total medical care is
provided by public hospitals.
IHH’s initial strategy
to enter parts of China is
to introduce its Parkway
Health brand under its own
small medical centres. Only
when the brand becomes
established among the locals
will IHH move into operating a
hospital. The group will form
an alliance with a local partner
and target only rich paying
customers; for example,
expats with offshore insurance
capable of paying high prices.
In addition to recruiting from
abroad, the group will try to
arrange with local universities
to supply them with specialists
(the same arrangement exists
between Gleneagles Hong
Kong and the University of
Technical Analysis
of IHH Healthcare Berhad
IHH Healthcare (IHH) broke out
from the sideways trend in 2013
and ascended in a gradual manner.
Upon hitting its resistance line, it was
shoved back and the support at around
RM3.50 halted it from falling further.
This provided IHH with sufficient
momentum for it to rally higher. As
the group continued to record higher
revenue, the support line held extremely
well and it constantly surpassed its
previous peak on each rebound to
create new highs, thus forming an
upward sloping price channel. Now,
it has once again reached the upper
boundary of its channel but the strong
resistance seems to be causing it to
lose its upward momentum, and its
weekly directional movement index is
turning bearish. With its weekly MACD
diverging bearishly for the 1st time, IHH
is expected to find its first support at the
lower boundary of its channel. Should
this break, IH would be in a new bear
trend.
FROM PAGE 12
patients can use money from
their Medisave accounts for
day surgery or in-hospital
admissions; however, they
have to be referred by the
group’s Singapore centres first.
This could help the hospital
reduce its turnaround period.
China
In China, IHH, along with
its Chinese partner, Shanghai
Broad Ocean Investments Co.
Ltd, formed a subsidiary in Oct
2015 in which the group will
own a 60% stake. This was
done so that the
group could lease
and operate a
350-bed hospital
in Chengdu
from Perennial
Real Estate
Holdings Limited.
The capital
expenditure from
the subsidiary,
which will be
disclosed at a
later date, will
comprise medical
equipment.
The hospital
is expected
to open in 2H
2017. Chengdu is the fastest
growing city in Western China.
As China shifts its
growth paradigm from a
debt-fuelled investment-driven
(manufacturing,
construction, etc) strategy
to a more consumption-
and services-oriented one,
healthcare services is one
industry that is set to reap
benefits. The government
has been signalling a
positive attitude towards
developing private hospitals.
To accelerate development, it
has taken measures including
exemption from business tax,
the promotion of free flow of
human talent among different
medical agencies and the
encouragement of diversified
funding sources.
However, investors often
see the business opportunity in
hospitals without understanding
how challenging it is to run
one well in China. Many
doctors are reluctant to shift
“The group, which
already has a strong
foothold in Malaysia,
Singapore and Turkey,
is going after the big
emerging markets,
namely China and
India.”
Hong Kong). However, as
mentioned above, attracting
doctors from public hospitals
will be a challenge, especially
when taking into account the
fact that doctors will have to
seek permission from their
respective public hospitals
during a time when public
Source: Capital Dynamics
hospitals are short-staffed.
Management structure
Each individual hospital
will be run by its own CEO,
who will report to the Country
CEO and subsequently
report to the group’s CEO,
Dr Tan See Leng. Part of
the process of selecting a
CEO is putting candidates
through the Parkway Pantai
philosophy and system for
several years. Only after that
period has passed will they be
assigned to apply the group’s
philosophy according to local
conditions.
Conclusion
At RM6.50, IHH is
capitalised at RM53.4 bln. For
this, what do investors get in
return ?
IHH’s Singapore operation
acts as a cash cow to fund
overseas expansions. Its
net gearing position is
currently 18%. Its banks
are comfortable with a net
debt over earnings before
interest, tax, depreciation and
amortisation ratio of 3.5. As
at 3Q 2015, the ratio stood
at 1.90. The group, which
already has a strong foothold
in Malaysia, Singapore
and Turkey, is going after
the big emerging markets,
namely China and India. The
potential and possibilities
are vast, but so are the
challenges. IHH’s current
valuation is rich.
i
Capital
retains its Sell rating for IHH
Healthcare.
Table 1 Expansion
Type
Hospital
Description
Target completion Cost
Expansion Gleneagles KL
100 beds
Completed
RM28 mln
Expansion Pantai Hospital Ayer Keroh
160 beds
Early 2017
RM138.8 mln
Expansion Pantai Hospital Klang
80 beds
Planning stage
RM49 mln
Expansion Pantai Hospital KL
Phase 2: 120 beds Planning & Design RM70.8 mln
Greenfield Gleneagles Medini, Johor
Phase 1b: 160 suites 3Q 2017
N/A
60:40 JV Gleneagles Hong Kong
500 beds
Early 2017
RM1.8 bln
50:50 JV Gleneagles Khubchandani, Mumbai 450 beds
2017
N/A
Expansion Acibadem Maslak, Turkey
200 beds
2017
RM246.4 mln
Greenfield Acibadem Altunizade, Turkey
325 beds
1Q 2017
RM448.5 mln
Greenfield Acibadem Kartal, Turkey
120 beds
early 2017
RM291.7 mln
Greenfield Acibadem Atasehir, Turkey
180 beds
Under evaluation RM256.9 mln
Source: Company data
B
| Stock Selections
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Capital Dynamics Sdn Bhd
The week of 21 January – 27 January 2016
Volume 27 Number 21