IHH Healthcare - CGS-CIMB Research 2020-03-01: Keep Calm And Refreshed

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IHH HEALTHCARE BERHAD (SGX:Q0F)

IHH Healthcare - Keep Calm And Refreshed

• IHH Healthcare's 4Q in line; FY19 core PATMI -10% y-o-y on higher interest, FX and tax costs.
• We expect IHH Healthcare’s focus on prudent cost management with the recent Prince Court acquisition to mitigate near-term revenue headwinds from Covid-19.
• IHH Healthcare’s 2020 renewed strategy could see more efficient capital deployment and re-rate the stock.
• Reiterate ADD with a higher SOP-based Target Price of RM6.26.

FY19 in line, underlying PATMI -10% y-o-y

• IHH Healthcare (SGX:Q0F) reported FY19 core PATMI of RM920.7m, in line at 105%/101% of our/consensus full-year forecasts. This was 10% lower y-o-y due to higher net interest, FX and tax expenses (from reversal of deferred tax assets).
• Excluding MFRS 16 lease impact and in constant currency terms, FY19 revenue and EBITDA rose 34% and 23% y-o-y, respectively, thanks to sustained organic growth in Singapore/Malaysia, as well as both Amanjaya and Fortis acquisitions.
• IHH Healthcare declared a higher DPS of 4 sen for FY19 (FY18: 3 sen).

Near-term revenue headwinds from Covid-19

• While there has not been significant disruption from Covid-19, IHH Healthcare expects slower medical tourism in the near-term (which accounts for c.25% of Singapore revenue), though this could be mitigated by
  1. more border screening and diagnostic treatment services,
  2. higher mix of critical cases vs. elective treatments at its hospitals, and
  3. diversified operations.
• IHH Healthcare also faces delays in the opening of its China clinics and ramp-up in its Chengdu hospital, pending approval from local authorities. Gleneagles Hong Kong (GHK) saw wider EBITDA loss of RM49.4m in 4Q19, a reversal from its strong 1H19 growth trend.

Refreshed 2020 strategy, backed by diversified operations

• Unlike Asean and North Asia, Turkey and India operations have been less affected by the ongoing virus outbreak, with higher inpatient admission volumes. The debt restructuring of Acibadem (non-lira debt currently stands at RM190m, from RM583m as of end 2018) would also lower the group’s exposure to lira volatility.
• IHH Healthcare also communicated its refreshed 2020 strategy, including
  1. pursue a geographical cluster strategy for growth,
  2. review of asset portfolio and capital deployment, and
  3. leverage its international scale to achieve stronger synergies.
• We see faster asset recycling and possible divestment of non-core assets as positive for IHH Healthcare.

Reiterate ADD

• We believe the near-term headwinds facing IHH Healthcare could be offset by
  1. management’s focus on prudent cost-management,
  2. potential synergies with Fortis, and
  3. recent acquisition of Prince Court Medical Centre.
• Reiterate ADD on the stock with a higher SOP-based Target Price of RM6.26 due to stronger EBITDA and higher market values of subsidiaries.
• See IHH Healthcare Share Price; IHH Healthcare Target Price; IHH Healthcare Analyst Reports; IHH Healthcare Dividend History; IHH Healthcare Announcements; IHH Healthcare Latest News.
• Successful execution of strategy and faster return of patient load post Covid-19 are re-rating catalysts.
• Downside risks could come from a prolonged virus

NGOH Yi Sin CGS-CIMB Research | https://www.cgs-cimb.com 2020-03-01

SGX Stock Analyst Report ADD MAINTAIN ADD 6.26 DOWN 6.370