Investment Highlights

• We maintain our HOLD call on IHH Healthcare with a lower fair value (FV) of RM6.27 (from RM6.29). We use DCF to value IHH with a 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 IHH Healthcare.

• IHH’s 9MFY21 core earnings came in within our expectation. It accounted for 76% of our full-year earnings forecasts. However, it is higher than consensus’ estimate as it makes up 85% of consensus’ full-year estimate. As expected, no dividend was declared in 3QYF21.

• We believe that consensus may have underestimated Parkway Pantai Malaysia (PPM) earnings in which its EBITDA has increased 8% QoQ while other markets experienced lower EBITDA QoQ. Note that PPM revenue per inpatient admission increase of 7.2% has exceeded inpatient admissions by 2% QoQ.

• YoY, IHH Healthcare core earnings surged 236% to RM1.15 billion. This is supported by a strong revenue growth of 31% YoY as patients resumed their non-critical treatment and visits to hospitals which have been delayed.

• The weaker QoQ earnings by 24% is expected. This is in line with lower Covid-related revenue in India as the number of cases declined QoQ. This has more than offset the inpatient volume for India and other countries.

• Outlook. In 3QFY21, Covid-related services still made up 6%–29% of the group’s total revenue from various countries that it is operating in. Having said that, we expect Covid-related revenue to decline as most countries that IHH is operating in have reached a high level of vaccination. This will be replaced by core hospital business which may have lower margin but more sustainable in the long run.

• FY22 earnings estimate reduced by 2%. This is to account for the prosperity tax for IHH Malaysia’s operations. IHH’s FV is reduced slightly to RM6.27 (from RM6.29) is in line with our lower earnings estimate for FY22. Risks to our call are lower-than-expected patient volume and weaker revenue per patient.

Source: AmInvest Research - 30 Nov 2021