Investment Highlights

• We maintain our BUY call on IHH Healthcare (IHH) with a slightly higher fair value of RM6.26/share (vs. 6.25/share). Our valuation is based on DCF with a WACC of 7.0%.

• IHH’s FY20 core net profit of RM715mil exceeded expectations. It accounted for 124% and 134% of ours and street expectations respectively.

• We increase our earnings expectation for FY21E and FY22F by 10% and 1% respectively to take into account IHH’s stronger-than-expected recovery across all geographical segments, in particular Turkey, which has seen a YoY increase in the percentage of foreign patient revenue contribution.

• Going forward, we are optimistic on IHH’s outlook. This is based on its expansionary outlook, strict cost controls and clearly defined strategy for each geographical segment.

• Financial and operational highlights:

1. Revenue fell to RM13.4bil (-10% YoY), while core EBITDA fell to RM3.2bil (-9% YoY) in FY20. Core EBITDA margin of 23.5% was unchanged YoY in FY20. This can be attributed to IHH’s proactive actions to tighten costs, as well as the government grants and reliefs received.
2. For most segments, Covid-19-related services contributed roughly 6–11% revenue for the year. It contributed to 20% of revenue in India, given the higher volumes of Covid-19 patients being treated in these hospitals. As cases continue to wane, we expect Covid-19 income sources to be replaced by higher margin-yielding non-Covid patients.
3. At the moment, revenue intensity is still elevated as higheryielding complex and urgent cases make up the majority of the case mix. This is expected to reduce as regular patients return.
4. Turkey and the central and eastern European (CEE) region saw YoY growth in foreign patient contribution in 4QFY20. Foreign patient accounted for  9% of the region’s 4QFY20 revenue vs. 18% in 4QFY19.
5. Only Malaysia experienced a fall in inpatient admissions in 4QFY20. This was due to the CMCO in November. However, revenue still climbed by 7% QoQ to RM619mil in 4QFY20 due to Covid-19-related services and contributions from Prince Court Medical Centre. EBITDA from Prince Court turned positive in 4QFY20.
6. Gleaneagles Hong Kong is performing well and is targeted to break even at the EBITDA level in FY21F, as long as Hong Kong does not stay in a protracted lockdown mode.

Source: AmInvest Research - 1 Mar 2021