Investment Highlights

• We maintain our BUY recommendation for IHH Healthcare with a higher fair value of RM6.58/share. Our valuation is based on DCF with a WACC of 7.0%. We lower our WACC 7.0% from 7.4% to reflect a lower risk-free rate.

• IHH’s 1QFY20 core net profit of RM189.4mil (+1% YoY) was largely within our and street’s expectations, accounting for 24% of our and consensus’ full-year earning’s estimates.

• IHH’s 1QFY20 revenue fell 2.4% YoY (-7.3% QoQ) to RM3,555.2mil. This was largely attributed to the impact of Covid-19 pandemic. Since late January 2020, patients have been postponing non-urgent and non-essential treatments as well as visits to hospitals and healthcare facilities.

• Foreign patient volume declined from March 2020 onwards due to travel restrictions across the different countries that IHH operates in.

• The drop in sales was slightly offset by Covid-19-related services that the group provides like the Covid-19 screening and laboratory tests in Malaysia and Singapore. Moreover, the group also receives walk-in Covid-19 patients.

• Core net profit inched up 0.5% YoY in 1QFY20 on the back of lower interest expense with the repayment of loans in 2H19.

• The core net profit excludes the impairment loss on goodwill of RM400.5mil in respect of investments in Global Hospitals in India. This follows a thorough portfolio review of non-Fortis India investments made in 2015 and earlier.

• Segmental highlights are as follows;

1. Parkway Pantai’s revenue dropped 3% YoY to RM2,492.6mil in 1QFY20 due to lower patient volumes because of the impact from the Covid-19 pandemic. This was slightly mitigated by Covid-19 services offered by the company. It was also coming off from a high base as there was a one-off RM28.5mil trustee management fee income relating to the disposal of RHT assets in 1QFY19.

Source: AmInvest Research - 30 Jun 2020