IHH Healthcare - UOB Kay Hian 2022-05-27: 1Q22 Within Expectations Despite Omicron Wave

IHH HEALTHCARE BERHAD (SGX:Q0F)

IHH Healthcare - 1Q22 Within Expectations Despite Omicron Wave

IHH Healthcare saw sustained growth in key markets, with Malaysia seeing a compelling recovery in patient admission. Acibadem was a particular bright spot as it sustained earnings contributions despite domestic headwinds. Further recovery in patient volumes alongside medical travel should well anchor IHH Healthcare’s earnings growth going forward.

We continue to like IHH Healthcare for its defensive properties and decent three-year earnings (2021- 24F) CAGR of 8.5%. Maintain BUY and target price of RM7.30.

IHH Healthcare (SGX:Q0F)’s 1Q22 core profit of RM408m grew 21.3% y-o-y (-7.6% q-o-q). It is within both our and consensus’ full-year estimates at 24% and 22% respectively. The highlights for the quarter are:
1. key markets continue to perform admirably despite Omicron wave, and
2. despite hyper-inflationary conditions, Acibadem registered a resilient performance with growth in both patient admission and revenue intensity.

Singapore operations’ top-line grew 8.2% y-o-y but declined 3.6% q-o-q. The y-o-y growth is attributed to higher revenue intensity (+20.2%) due to beds allocated to COVID-19 patients and a better case mix arising from a higher mix of non-elective patients. This was amid patient admission declining (-5.5% y-o-y).
That said, IHH Healthcare expects Singapore to be buoyed by the return of medical travel and domestic elective patients going forward. Malaysia revenue saw sustained y-o-y growth of 15.1%. This was off a rebound in inpatient admission (19.3%) as revenue intensity softened off the back of a higher proportion of elective cases. This is especially encouraging given that Omicron wave was especially prevalent throughout 1Q22.
EBITDA margins improved by 4.1ppt to 27.5% thanks to IHH Healthcare’s positive operating leverage and cost discipline measures.

Meanwhile, Acibadem’s revenue declined 4.4%. This was entirely due to the weakening of the Turkish lira. In local currency terms, revenue intensity grew 52.5% amid a hyper-inflationary economy as patient admission improved by 11.4%. Performance is especially resilient due to Acibadem’s positioning towards the ultra-wealthy and its domestic patients now only account for 55% of total revenue (2018: 67%).
North Asia continues to see limited operational losses of - RM18.3m (21Q1: -RM36.2m). But it should improve as Gleaneagles HK improves its gestation before being weighed by start-up losses in Gleneagles Shanghai, which is due to commence operations in 2H22.

IHH Healthcare's India operations saw revenue growing 4.8% off improved revenue intensity (+9.6%) as inpatient admission eased by 7.7%. We expect admissions to improve as the COVID-19 wave eases going into 22Q2.

No changes to earnings forecast for IHH Healthcare.
Key downside risks are:
1. execution risk,
2. shortfall in turning around Fortis, and
3. heightened regulatory hurdles.
Maintain BUY but with a lower SOTP-based target price of RM7.30 (from RM7.60) as we revise our risk-free rate assumptions. Our SOTP-based target price for IHH Healthcare implies 37.2x 2022F P/E, below its -1 standard deviation of its five-year mean P/E.
IHH Healthcare's valuations appear attractive with:
1. resilient yet defensive three-year earnings (2021-24F) CAGR of 8.5%; and
2. IHH Healthcare’s sound track record.
Earnings drag arising from its North Asia operations has largely diminished while Acibadem’s operations are being increasingly de-risked with an increasing proportion of foreign patients. 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.
See

Philip Wong UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-05-27

SGX Stock Analyst Report BUY MAINTAIN BUY 2.30 DOWN 2.450