A reasonable start

+ 1Q13 in line, forms 18% of FY13F earnings 

+ EBITDA margins weaker on start up costs of new hospital and other operating costs - within expectations 
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+ Novena losses continue to narrow with breakeven expected in FY13 

+ Maintain HOLD, TP revised to S$1.55

1Q13 within expectations. 1Q core net profit (excl. exceptional items) of RM133.5m was 17% higher than a year earlier, accounting for c.18% of our FY13F earnings. Revenue and EBITDA grew by 29% and 24% to RM1.6bn and RM347.6m respectively, partly driven by a full quarter of Acibadem’s consolidation in 1Q13, compared to only two months a year earlier. In addition, the Group also saw revenue growth from existing operations and contribution from new hospitals.

Margins weakened marginally on start up losses, operating costs. EBITDA margins (excl PREIT) weakened marginally by 0.8ppts to 21.7% (1Q12: 22.5%) as it saw continued losses from its new hospitals. It also faced cost pressures from personnel and operating lease expenses, particularly its Singapore hospitals. This is within our expectations. We estimate FY13F EBITDA margin to be 20.8%.

Losses narrowing from Novena hospital. Novena Hospital posted a smaller EBITDA loss of RM3m (from -RM15.6m/ - RM16.4m in 1Q12/ 4Q12). This was achieved on the back of higher revenue of RM37.2m and streamlining of its operating costs. Hence, it seems like management’s target of achieving EBITDA breakeven by 1H13 is within reach.

Maintain HOLD, TP raised to S$1.55 (RM3.73). We raised our TP to S$1.55 (RM3.73) on the back of a higher EV/EBITDA multiple of 22x (from 18x) on FY13F/14F earnings for its Singapore operations and its international operations (14x, from 13x) with the re-rating of peers. We also adjust for the higher market values for its holdings in listed entities, namely PREIT and Apollo Hospitals. Maintain HOLD, given its relatively rich valuations at 41x/35x on FY13F/14F earnings.