IHH Healthcare - UOB Kay Hian 2021-08-27: 2Q21 Firing On All Cylinders

IHH HEALTHCARE BERHAD (SGX:Q0F) | SGinvestors.io IHH HEALTHCARE BERHAD (SGX:Q0F)

IHH Healthcare - 2Q21 Firing On All Cylinders

  • IHH Healthcare’s 2Q21 core profit well exceeded expectations. Non-COVID-19 patient admission was surprisingly robust while GHK achieved operational breakeven. While pandemic-related contributions are expected to normalise, this is balanced by turnaround in GHK and Acibadem’s operations have been de-risked significantly. IHH Healthcare’s valuations are attractive, with resilient yet defensive 3-year earnings (2020-23F) CAGR of 25.6%.
  • Maintain BUY rating on IHH Healthcare with a higher target price RM6.40.



IHH Healthcare's 2Q21 earnings exceeded expectations.

  • IHH Healthcare (SGX:Q0F)’s 2Q21 core profit of RM463.6m (+38% q-o-q, -734% y-o-y) brought 1H21 core profit to RM799m (+587% y-o-y). 2Q21 core profit is well above both our and consensus expectations at 80% and 73% of full-year estimates. The positive deviation was largely due to sustained inpatient admissions at established markets while Gleneagles Hong Kong (GHK) achieved operational breakeven sooner than expected.

Low-base effect, returning inpatient volume and COVID-19 services boosts earnings.

  • IHH Healthcare's Singapore operations’ top-line growth grew 57% y-o-y. This was due to:
    1. a low 2Q20 base effect (inpatient volume contracted 34% y-o-y); and
    2. COVID-19 patients and COVID-19-related services, which contributed to 24% of revenue.
  • COVID-19 services are likely to contribute to elevated volumes for the rest of 2021. Seeing that the endemic situation in Singapore is relatively curtailed, the number of non-COVID-19 patients should gradually recover.
  • In Malaysia, revenue grew correspondingly at 53% y-o-y. It was partly due to similar circumstances to Singapore, but with lower COVID-19-related contributions (12% of revenue). It well surpassed our expectations with non-COVID-19 patient volumes recovering on a y-o-y basis. That said, we expect COVID-19 contributions to tail off in 4Q21 as the country expects to achieve herd immunity by then.

GHK achieves breakeven while Acibadem see European boost.

  • Gleneagles HK’s European operations as its COVID-19 contributions remained stable on a q-o-q basis.

India sees blockbuster growth off pandemic outbreak but should normalise ahead.

  • India operations saw revenue doubling (inpatient admissions: +46%, revenue intensity 48%). This was off the back of COVID-19 contributions (31% of revenue). We believe it should normalise in the quarter ahead, with the COVID-19 situation in India improving significantly.


EARNINGS REVISION/RISK

  • We raise our earnings forecast for IHH Healthcare by 20/9/6% for 2021-23 to factor in higher inpatient admissions and better margins.
  • Key downside risks are:
    1. execution risk;
    2. shortfall in turning around Fortis; and
    3. heightened regulatory hurdles.


IHH HEALTHCARE - VALUATION






Philip Wong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-08-27
SGX Stock Analyst Report BUY MAINTAIN BUY 2.06 UP 1.830



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