IHH Healthcare - RHB Invest 2022-11-30: Uneven Recovery Path; Maintain BUY


IHH Healthcare - Uneven Recovery Path; Maintain BUY

  • IHH Healthcare's 9M22 earnings were below expectations, mainly due to a decline in COVID-19-related revenues and weakening TRY. However, we continue to favour this stock, as we believe IHH Healthcare’s recovery remains on track given the resilient demand for healthcare.

IHH Healthcare's 9M22 earnings below expectations

  • Earnings below expectations due to weaker-than-expected EBITDA from IHH Healthcare (SGX:Q0F)’s Malaysia, India, and Acibadem operations, which represent 69%, 71%, and 63% of our FY22 forecasts.
  • Its 9M22 core earnings of MYR1,065m (-2.2% y-o-y) made up 72% and 65% of our and Street’s FY22 estimates.

Solid recovery for Malaysia.

  • Operationally, revenue intensity dropped 16% y-o-y in 3Q22 – offset by the growth in inpatient admissions (+57% y-o-y) post reopening of borders – while bed occupancy improved significantly to 70% (3Q21: 48%, 2Q22: 61%). This led to a 24% growth in EBITDA.
  • We continue to expect recovery in Malaysia to remain intact, supported by domestic electives and disciplined cost measures.

Singapore EBITDA dropped

  • Singapore EBITDA dropped 14% y-o-y in 3Q22 despite a 32% increase in revenue intensity due to cost pressures from nursing shortages on salaries, which resulted in lower margins. Inpatient admissions also dropped 4% y-o-y as a result of nursing shortages, leading to constraints on bed capacity.

India’s performance was slightly weaker y-o-y.

  • Despite increasing patient admissions (+6% y-o-y) and higher revenue intensity (+8% y-o-y), India’s EBITDA fell 1% in 3Q22 – likely due to increases in operational costs. However, the relatively huge scale in India should allow IHH Healthcare to better manage the rising operational costs by ramping up productivity.
  • We anticipate a growth in its domestic electives and recovery in medical travel in the coming quarters.

Acibadem still posted weaker earnings.

  • Despite higher revenue intensity (+45% y-o-y) in 3Q22, the weakening TRY vs the MYR and lower inpatient admissions (-1% y-o-y) eroded EBITDA (-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 year-to-date22 vs 41% FY21).

IHH Healthcare – Earnings forecast and recommendation

  • We make no changes to our FY22F-24F earnings, recommendation, and target price for IHH Healthcare, pending the analysts briefing on 30 Nov.
  • IHH Healthcare's share price is still trading at an undemanding 13x FY23F EV/EBITDA (-1 standard deviation of its 5-year mean). We ascribe a 0% ESG premium/discount to our intrinsic value, as IHH Healthcare’s ESG score is in line with the country median.
  • Maintain BUY rating on IHH Healthcare with SOP-derived target price of MYR7.42, 24% upside with ~1% yield.
  • Key downside risks: Mandatory Takeover Offer or MTO overhang on Fortis, lower-than-expected patient volume/revenue intensity, and higher-than-expected operating costs.

Oong Chun Sung RHB Securities Research | https://www.rhbgroup.com/ 2022-11-30
SGX Stock Analyst Report BUY MAINTAIN BUY 2.28 DOWN 2.330