Investment Highlights

• We maintain our HOLD call on IHH Healthcare with an unchanged fair value (FV) of RM6.27. 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.

• Our earnings forecasts are maintained following the analyst briefing yesterday. These are the salient highlights:
  • Malaysia operations: Revenue improved 23% YoY as inpatient revenue/admission increase of 25% more than offset the volume decline of 11% YoY. As a result, EBITDA rose 26% YoY. Average occupancy rate was 48% in 3QFY21.
  • Singapore operations: Revenue surged 32% YoY as inpatient revenue/admission increase of 6% more than offset the volume decline of 2% YoY. As a result, EBITDA expanded 5% YoY. Average occupancy rate was 55% in 3QFY21.
  • Turkey and Europe operations: Revenue climbed 22% YoY as inpatient revenue/admission increased by 12%. Inpatient volume was also up 12% YoY. As a result, EBITDA jumped 34% YoY. Average occupancy rate was 75% in 3QFY21.
  • India operations: Revenue swelled 41% YoY as inpatient volume rose by 29% YoY. Inpatient revenue/admission inched up by 3%. As a result, EBITDA leapt 102% YoY. Average occupancy rate was 66% in 3QFY21.
  • Gleneagles Hong Kong (GHK) achieved another EBITDA-positive quarter in 3Q2021. Recall that GHK has started to break even in May 2021 during 2Q2021. GHK achieved 61% occupancy rate in 3Q2021.
  • Malaysia’s prosperity tax impact is estimated to be RM20mil for FY22 at the group level.
  • Net gearing has declined to 0.24 as of end-3Q2021 compared to 0.25 as of end-2Q2021. It is also lower than end-2020’s level of 0.28x. This is caused by strong cash flow as IHH continues to grow its business while keeping a lid on its cost increase.
• All in, we maintain our HOLD call on the company. The better earnings prospect from higher core hospital operation is offset by a drop in Covid-related revenue and the Turkish lira depreciation.

Source: AmInvest Research - 1 Dec 2021