IHH Healthcare - UOB Kay Hian 2021-06-01: 1Q21 Results Within Expectations Amid Recovery In Key Markets

IHH HEALTHCARE BERHAD (SGX:Q0F)

IHH Healthcare - 1Q21 Results Within Expectations Amid Recovery In Key Markets

IHH Healthcare saw a strong start to the year with 1Q21 core profit growing 77.3% y-o-y on the back of a domestic recovery, while benefitting from COVID-19-related services. That said, tightened measures in key core markets are expected to weigh over the near term.
IHH Healthcare's valuations are attractive, with resilient yet defensive 3-year earnings (2020-23F) CAGR of 23.5%. Furthermore, GHK’s earnings drag and Acibadem’s operations have been de-risked significantly.
Maintain BUY. Target price for IHH Healthcare unchanged at RM5.70.

IHH Healthcare (SGX:Q0F)’s 1Q21 core profit grew 77.3% y-o-y but contracted 9.6% q-o-q. 1Q21 core profit is within below both our and consensus expectations at 33% of full-year estimates. Top-line was well supported by COVID-19 related services, which more than offset lower elective cases, and boosted earnings. However with the tightened COVID-19 measures in both its key markets, Singapore and Malaysia, we expect a soft 2Q21.

IHH Healthcare's Singapore operations’ top-line growth grew 14% y-o-y. This was due to:
- a low 1Q20 base effect, with patient volume tailing off at the end of the quarter;
- almost a full recovery in domestic volume; and
- COVID-19 patient and COVID-19 related services, which had a mid-teens contribution to revenue.
EBITDA margins further improved by 3.8ppt to 36.1% thanks to better case mix and lower labour cost.
Meanwhile in Malaysia, revenue grew by 10% y-o-y due to a low-base effect, further boosted by the Prince Court acquisition and COVID-19 related services. Going forward, the tightening of COVID-19 movement measures is likely to curtail patient volumes in both these key markets. Meanwhile in Malaysia, we do not expect the significant COVID-19 inpatient volume to offset a drop in elective patient volume.

Gleneagles HK’s (GHK) EBITDA losses improved by 35% to -RM20.5m thanks to increased inpatient admissions (16%) and revenue intensity (11%). IHH Healthcare's management expects GHK to breakeven at the EBITDA level this year, provided that Hong Kong does not stay in a protracted lockdown.
Meanwhile, Acibadem’s revenue grew at 11% y-o-y in ringgit terms. This was off the back of a slight decline in inpatient admissions (-2%) but was more than offset by revenue intensity growing 28.7% y-o-y. The significant spike in revenue intensity is due to better case mix through complex cases and price adjustments to counter inflation. Its non-lira debt exposure now stands at -24m (end-1Q20: €183m). The unhedged euro exposure will be further de-risked as IHH Healthcare continues to expand its euro contribution.

IHH Healthcare's India operations continue to see a sustained recovery, with revenue growing 11% y-o-y and 4.5% q-o-q. This was off the back of COVID-19 related services and recovery in non-COVID-19 inpatient admissions. Margins improved off the back of a better mix of complex cases. Going forward, we expect occupancy rates to improve further with India’s COVID-19 cases skyrocketing. However, this would be slightly diminished by lower elective cases.

Our SOTP-based target price for IHH Healthcare implies 37.0x 2022F P/E, below its historical 5-year, 12-month forward P/E of 46x. Valuations appear attractive with:
- resilient yet defensive 3-year earnings (2020-23F) CAGR of 20.1%; and
- IHH Healthcare’s sound track record.
Earnings drag arising from its North Asia operations have largely diminished while Acibadem’s operations are being increasingly de-risked with an increasing foreign patient mix.
See
The diminished risks and attractive valuations far exceed the uncertainty revolving around Fortis and IHH Healthcare’s initial 31% stake that has been brought into question.

Philip Wong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-06-01

SGX Stock Analyst Report BUY MAINTAIN BUY 1.83 DOWN 1.950