IHH Healthcare - CGS-CIMB Research 2020-11-27: Back To Healthier Stats In 3Q20

IHH HEALTHCARE BERHAD (SGX:Q0F)

IHH Healthcare - Back To Healthier Stats In 3Q20

IHH Healthcare's solid 3Q20 core PATMI of RM238.4m took 9M20 core PATMI to RM343.6m, largely in line, at 66%/62% of our/consensus expectations.
IHH Healthcare's 3Q20 revenue decline narrowed y-o-y on improving occupancy across all countries, leading us to believe that 2Q20 was the worst quarter of the year.
This report marks the change in covering analyst. Reiterate ADD on IHH Healthcare and a higher target price as we roll forward our valuation to end-CY21F.

IHH Healthcare (SGX:Q0F)'s 3Q20 topline grew 37.2% q-o-q as inpatient volumes improved across IHH Healthcare’s various markets, leading to a smaller y-o-y topline decline of 7% (vs. -29.6% y-o-y in 2Q20).
IHH Healthcare's 3Q20 inpatient volumes improved q-o-q — MY: +37%, SG: +26%, Acibadem, Turkey: +27%, and India: +37%.
Despite the y-o-y topline decline, higher 3Q EBITDA margin of 23.7% (vs. 3Q19’s 21.9%) — led by tight cost controls and receipt of government grants and reliefs — took 3Q20 EBITDA to RM832.7m (+0.5% y-o-y). The relatively unchanged 3Q EBITDA and lower net interest expense (due to lower borrowing costs and loan quantum) led to 3Q20 core PATMI growing 17.8% y-o-y, a significant turnaround from the RM84.2m loss in 2Q20.

IHH Healthcare mentioned that 3Q20 occupancies across its countries had recovered to 50-65%, which is about 70-90% of pre-COVID-19 levels. The improved occupancy should sustain into 4Q20F.
While medical tourism remains curtailed in most places, except Acibadem, the return of local patients in strength (including elective cases) since Jun is encouraging.

While IHH Healthcare remains optimistic of progressive recovery, it cautions on further short-term disruptions from subsequent outbreaks and renewed lockdowns. To mitigate such volatilities, IHH Healthcare will maintain its diversified service offerings (e.g. telemedicine, treatment of COVID-19 patients, diagnostic testing) and stringent cost controls.
Its focus on its refreshed strategy saw it divesting of its 50% equity interest in the Apollo Gleneagles Hospital JV to recycle capital into higher yielding opportunities. It also completed its acquisition of Prince Court Medical Centre in Sep 20, which is part of its metro cluster strategy.

Despite the strong 3Q20, we stay conservative and keep IHH Healthcare's FY20F earnings forecast intact as 4Q20F could be impacted by COVID-19 volatilities and as government grants/reliefs could taper off.
Reiterate ADD as the stock currently trades at c.18x FY21F EV/EBITDA, more than 1 s.d. below its 5-year historical mean. We roll forward our valuation to end-CY21F; this takes our SOP-based target price to RM6.98.
See IHH Healthcare Share Price; IHH Healthcare Target Price; IHH Healthcare Analyst Reports; IHH Healthcare Dividend History; IHH Healthcare Announcements; IHH Healthcare Latest News.
Catalysts include: Stronger-than-expected recovery to inpatient volumes.
Downside risks to our ADD rating: protracted economic recovery and overhang from delayed IHH Healthcare/ Fortis court proceedings.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-27

SGX Stock Analyst Report ADD MAINTAIN ADD 2.30 UP 2.010