Kenanga maintains underperform on IHH, TP at RM5.15

KUALA LUMPUR: Kenanga research has maintained its earnings forecasts on IHH Healthcare Bhd
on uncertainty over potential future provisions on Fortis.

In a note, the research house said it remains cautious on Fortis in terms of additional findings which could pose risks in terms of provisions.

It added that moving forward, IHH faces tough operating conditions due to the uncertain Turkish Lira and execution risk at Fortis as well as uncertainty over its turnaround timeline.

This comes on the back of an analyst briefing held by IHH to dispel investors’ concerns with regards to auditors’ latest qualified opinion on on its 31.1% stake in Fortis.

According to Kenanga, IHH does not see significant risk from the qualified opinion in terms of additional provisions.

“IHH explained that steps and measures have been taken which include review and improve financial reporting processes and enhancing authorisation levels for payments or transfer of funds within the Fortis Group.

“With the blessings from Securities and Exchange Board of India (SEBI), Fortis has taken steps to recover dues from former controlling shareholders of Fortis to the tune of RM265m to
RM275m of which the group is confident of recovering,” said Kenanga.

Kenanga added that IHH has initiated an independent forensic audit on Fortis Group’s operations, expected to be completed before end-2019.

IHH is awaiting Bank Negara’s formal approval to recapitalise US$250mil existing subordinated loans to help reduce the non-cash forex loss related to non-Turkish Lira borrowings.

The group is also looking to refinance the remaining US$430mil in debt denominated in USD and Euro by swapping 50% of the sum into local Turkish Lira and the remainder to be refinanced into either USD or Euro.

“While we see the repayment of the entire non-Turkish Lira debt as a positive, which is expected to reduce swings in forex translation, this, however, comes with the drawback of a higher interest rate,” said Kenanga.

The research house maintained its underperform recommendation on IHH and target price of RM5.15.

Source : TheStar