IHH HEALTHCARE BERHAD (SGX:Q0F)
IHH Healthcare - 2Q22 Blip As Admissions See An Unequal Recovery
- IHH Healthcare saw an uneven recovery in patient volume admission as COVID-19-related contributions moderated as expected.
- Acibadem’s solid domestic performance was dented by its hyper-inflationary environment as earnings were curtailed. This confluence of factors dragged on earnings, below our expectations. However, eventual admission recovery should support its earnings going forward.
- Maintain BUY with a target price of RM7.10.
IHH Healthcare's 2Q22 below our estimate but within consensus expectations.
- IHH Healthcare (SGX:Q0F)’s 2Q22 core profit of RM318m contracted 22.1% y-o-y (-31.5% q-o-q). It brought 1H22 core profit to RM725m (-9.3% y-o-y). It is below our estimate but within consensus full-year estimates at 42% and 45% of full-year earnings respectively.
- The negative variance is hyper-inflationary conditions weighing more than expected on Acibadem’s contributions and shortfall in inpatient admission recovery to offset moderating COVID-19-related contributions.
Malaysia almost back to pre-pandemic levels as moderating COVID-19 contributions weigh on Singapore.
- Singapore operations’ top-line was flattish at 0.8% y-o-y. This was amid flattish inpatient admission (-0.7% y-o-y) but higher revenue intensity (+21.9% y-o-y) attributed to better case mix with a higher proportion of acute patients seeking treatment. Inpatient admission remains 20% below pre-pandemic levels. The tapering of COVID-19- related revenue to 5% of revenue (1Q22: 22%) was a contributing factor to flattish revenue. EBITDA earnings contracted 6.0% y-o-y off lower margins.
- In contrast, Malaysia continues to realise a swift recovery in inpatient admission (+31.2% y-o-y). The higher elective case mix diluted revenue intensity (-7.1% y-o-y) as COVID-19 contributions moderated to 3% revenue (from 8% in 1Q22). EBITDA earnings grew 20% y-o-y off enhanced margins from the positive operating leverage.
Solid domestic performance but hyper-inflation translation weighs on Acibadem’s contributions.
- Meanwhile, Acibadem’s revenue was flattish (+0.2% y-o-y) as patient volume (+11%) and revenue intensity in ringgit terms (+16% y-o-y, in local currency terms: +46%) grew. However due to the hyper-inflationary environment, earnings in ringgit terms contracted by 35%. Acibadem’s operations contributed between 25-30% of EBITDA earnings previously.
- Meanwhile in India, absence of COVID-19-related contributions weighed on revenue (-2.0% y-o-y) despite registering positive inpatient volume (21.7% y-o-y).
IHH Healthcare - Earnings forecast revision and recommendation
- We cut our 2022-24 earnings forecasts for IHH Healthcare by 12/7/10% to account for lower patient volume admission and Acibadem contributions.
- Maintain BUY recommendation on IHH Healthcare with a lower SOTP-based target price of RM7.10 (from RM7.30). SOTP-based equity value of RM61,884mil consists of
- Parkway Pantai Limited (100% equity stake): RM39,846mil.
- Acibadem (90% equity stake): RM11,259mil.
- Fortis (31.1% equity stake): RM6,424mil.
- IMU Health (100% equity stake): RM1,509mil.
- Parkway Life REIT (SGX:C2PU) (35.7% equity stake): RM2,846mil.
- Our SOTP-based target price implies 37.4x 2022F P/E, or close to its -1 standard deviation of its 5-year mean P/E.
- See
- Valuations appear attractive with:
- resilient yet defensive 3-year earnings (2021-24F) CAGR of 4.2%, and
- IHH Healthcare’s sound track record. The attractive valuation outweigh the hyper-inflationary risks associated with Acibadem.
- Key downside risks are:
- execution risk,
- heightened regulatory hurdles.
Philip Wong
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-08-26
SGX Stock
Analyst Report
2.20
DOWN
2.300
