Investment Highlights

• We maintain our HOLD call on IHH Healthcare (IHH) with an unchanged fair value of RM6.29. We use DCF to value IHH Healthcare with WACC of 7% and terminal growth rate of 3.5%. Incorporated in our FV is a 3% premium for our ESG rating of 4 stars for the company. We are positive on the group’s digital healthcare initiative. Separately, we believe that 3Q2021 earnings should decline QoQ due to lower earnings contribution from laboratory.

• Despite being relatively new in the healthcare industry, digital health is increasingly becoming an important aspect in providing healthcare services to consumers more efficiently. According to the US Food and Drug Administration (FDA), digital health covers a broad scope and it includes mobile health (mHealth), health information technology (IT), wearable devices, telehealth and telemedicine, and personalized medicine.

• We gather that IHH Healthcare has launched its telemedicine services in May 2020. The company also aims to develop its digital healthcare capabilities in the next three years. The company has allocated US$100mil (equivalent to RM418mil) for this purpose.

• IHH Healthcare remains focused on providing excellent service to its patients. The company will leverage digital healthcare to improve patient experience. Some areas with potential opportunities are doctor appointment and drug delivery.

• In March last year, IHH Healthcare invested in a minority stake in telehealth start-up Doctor Anywhere (DA). DA is based in Singapore and it offers on-demand healthcare solutions through a digital platform. It aims to provide quick access to health and wellness solutions from anywhere. In early September 2021, IHH Healthcare made a follow-on investment as part of DA’s Series C fundraising.

• 3Q2021 earnings preview. We believe that IHH Healthcare earnings for 3Q2021 should decline QoQ but better YoY. Covid-19 daily new cases in India have eased to ~20,000 cases in September from the peak of ~400,000 cases in May. This should result in lower revenue for IHH Laboratory in 3Q2021 due to lower Covid-19 tests. Recall that IHH Laboratory generated RM975mil in 1H2021. India has the highest number of labs at over 420 (87% of the total 483 labs in 4 key markets). Although the number of elective surgeries may increase in 3Q2021, we expect that these would not be enough to offset the impact the lower earnings from laboratory tests.

• We are positive on IHH Healthcare’s venture into digital healthcare as this should lead to better operating efficiency and improved patient experience. For example, hypertension patients can reduce their frequency of visits to hospitals by submitting their blood pressure data (taken at home) periodically to the hospitals. Operationally, doctors will be able to focus their time on more serious cases.

• Artificial intelligence and machine learning can also be applied in certain areas such as detecting abnormalities in patients’ scans and X-ray readings.

Source: AmInvest Research - 5 Oct 2021