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

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%.

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.

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.

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

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.

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.

Maintain BUY rating on IHH Healthcare with an SOTP-based target price of RM6.40 (from RM5.70). Our appear attractive with:
1. resilient yet defensive 3-year earnings (2020- 23F) CAGR of 25.6%; and
2. IHH Healthcare’s sound track record.
See
Earnings drag arising from its North Asia operations have been addressed while Acibadem’s operations are being increasingly de-risked with an increasing foreign patient mix. 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/ 2021-08-27

SGX Stock Analyst Report BUY MAINTAIN BUY 2.06 UP 1.830