• We maintain our HOLD call on IHH Healthcare (IHH) with an unchanged fair value (FV) 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. Over the weekend, media reported that PNB is placing out some of its shares in IHH Healthcare. We are neutral on the news pending a formal announcement on the placement.

• The Edge Malaysia (TEM) weekly, citing a source familiar with the matter, reported that Permodalan Nasional Bhd (PNB) is placing out some of its shares in IHH Healthcare.

• Based on its Annual Report 2020, PNB (through its various funds and subsidiaries) owns around 5.5% stake in IHH Healthcare. The top three shareholders for IHH Healthcare are Mitsui & Co Ltd (32.90%), Khazanah Nasional (25.81%) and the EPF (8.30%) as of 31 March 2021.

• We are neutral on the news pending a formal announcement on the placement (if it materializes). IHH share price has done well this year with a YTD gain of 22% to RM6.72 (from RM5.50). This was supported by its strong EBITDA growth in 1H2021, surging by 107% to RM2.07bil.

• On the 3Q2021 outlook, we reiterate our view that earnings for 3Q2021 should decline QoQ. We expect lower earnings from IHH Laboratory. Covid-19 daily new cases in India have eased to ~20,000 cases in September from a peak of ~400,000 cases in May. This should result in lower revenue for IHH Laboratory in 3Q2021 due to fewer Covid-19 tests. Recall that IHH Laboratory generated a revenue of 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.

Source: AmInvest Research - 18 Oct 2021