IHH HEALTHCARE BERHAD (SGX:Q0F)
IHH Healthcare - Hiccups In The Midst Of Recovery; Keep BUY
- IHH Healthcare’s 1H22 earnings were slightly below expectations, mainly due to a decline in COVID-19 related revenues, weakening TRY, and effects of MFRS 129 application. As such hiccups were expected, we continue to favour IHH Healthcare as we believe its recovery remains on track on the resilient demand for healthcare.
- Maintain BUY recommendation on IHH Healthcare with SOP-derived target price of MYR7.60, 19% upside with ~1% yield.
IHH's 1H22 earnings below expectations
- IHH Healthcare (SGX:Q0F)'s 1H22 earnings below expectations mainly due to weaker performance from its Singapore operations, effects of Malaysian Financial Reporting Standard (MFRS) 129 applications as well as weakening TRY. Its 1H22 core net profit of MYR750m (+6.2% y-o-y) made up 46% of both our and Street FY22F.
- Singapore EBITDA dropped 5% y-o-y in 2Q22 despite a 23% increase in revenue intensity due to higher staff costs which resulted in lower margins. Inpatient admissions dropped 1% y-o-y as IHH ceased its arrangement with the health ministry to set aside beds for COVID-19 patients.
- Strong recovery for Malaysia. Operationally, revenue intensity dropped 7% y-o-y in 2Q22, which was offset by the growth in inpatient admissions (+31% y-o-y) post reopening of borders, while bed occupancy improved significantly to 61% (2Q21: 48%, 1Q22: 52%). This led to a 20% growth in EBITDA. We continue to expect recovery in Malaysia to remain intact, supported by domestic electives as well as discipline cost measures.
- India’s performance was weaker y-o-y. Despite increasing patient admissions, India’s EBITDA fell 11% in 2Q22 due to lower revenue intensity (-15% y-o-y) from a high base in 2Q21 which saw high number of COVID-19 patients and tests. However, its relatively huge scale in India should allow IHH Healthcare to better manage rising operational costs. We anticipate better recovery of its business-as-usual services with lower COVID-19 related revenues in coming quarters.
- Another underperforming quarter for Acibadem although higher patient admissions (+11% y-o-y) as well as revenue intensity (+16% y-o-y) in 2Q22, weakening TRY vs MYR eroded its revenue (-3% y-o-y) and earnings (-23% y-o-y). However, we remain optimistic on Acibadem’s earnings through IHH Healthcare’s continuous efforts to expand its non-TRY contributions (46% in FY22 year-to-date vs 41% FY21).
IHH Healthcare - Earnings forecast & recommendation
- We make no changes to our FY22-24F earnings, recommendation, and target price for IHH Healthcare, pending analyst briefing on 26 August.
- IHH Healthcare's Share Price is still trading at an undemanding 13x FY23F EV/EBITDA (-1 standard deviation of its 5-year mean).
- We ascribed a 0% ESG premium to our intrinsic value, as its ESG score is in line with the country median.
- See
- Key downside risks: Unfavourable Supreme Court ruling with regards to acquisition of controlling stake in Fortis, lower than expected patient volume/revenue intensity, and higher than expected operating costs.
Alexander Chia
RHB Securities Research
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https://www.rhbgroup.com/
2022-08-26
SGX Stock
Analyst Report
2.39
SAME
2.39
