Start-up costs for new Hong Kong hospital drags IHH Healthcare's profits

1Q17 core earnings were down by 15%.

IHH Healthcare's 1Q17 core earnings fell 15% YoY mainly due to start-up costs of the new HK hospital according to Maybank Kim Eng.

The HK hospital, which started operations in Mar 2017, is ramping up progressively and startup costs have been kept within expectation.

However the cost is likely to accelerate in 2Q17, as more specialties such as oncology and radiology will come on board. Also, the hospital is only expected to see more patients starting in early-Jun 2017, as the early ramp phase focuses on cases with less complexity.

Here's more from Maybank Kim Eng:

In 1Q17, inpatient volumes and revenue per patient grew across all four home markets. Revenue per patient recorded strong growth in Malaysia (+10.8% YoY) due to opening of a more advanced hospital. Furthermore, the largest market, Singapore recorded an upside surprise of healthy growth for both volume (+4.1%) and pricing (+2.9%), as the medical tourist contributions picked up, after a slow year in 2016.

Management highlighted that the Indonesian patients increased by 12% YoY. EBITDA grew 9% and 21% respectively in Malaysia and Singapore. Three new hospitals with 1,175 new beds in 2017 will drive growth (none in 2016). This includes the 500-bed Gleneagles Hong Kong in 1H17, the 325-bed Acibadem Altunizade (1H17) in Istanbul, and the 350-bed ParkwayHealth Chengdu Hospital (2H17). We have included these new hospitals in our forecasts.