Investment Highlights

• We maintain our HOLD call on IHH Healthcare with a higher fair value (FV) of RM7.00 (from 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.

• IHH’s FY21 core earnings came in above expectations. It accounted for 105%/106% of our and consensus earnings forecasts respectively. The positive variation is due to stronger-than-expected earnings from Singapore operations in which EBITDA grew 32% QoQ. This is supported by higher revenue per inpatient at 11% QoQ despite a slight decline in hospital inpatient admissions by 3% QoQ.

• A 6 sen dividend was declared. The ex-date is 30 March 2022 with payment date on 29 April.

• YoY, IHH Healthcare core earnings surged 123% to RM1.59bil. This is supported by a strong revenue growth of 28% YoY as patients resumed their non-critical treatment and visits to hospitals which have been delayed.

• QoQ, 4QFY21 earnings improved by 24% as expected. This is in line with higher EBITDA and lower net finance costs. During the quarter, EBITDA increased due to higher government grant income and lower staff costs.

• Outlook. In 4QFY21, Covid-related services still made up 6%–29% of the group’s total revenue from the various countries that it is operating in. Having said that, we expect Covid-related revenue fall decline as most countries where IHH is operating 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/FY23 earnings estimates have been increased by 3.9%/0.2% respectively to RM1.83bil/RM2.27bil. This is to account for the higher earnings contribution from Singapore. Risks to our call are lower-than-expected patient volume and weaker revenue per patient.

Source: AmInvest Research - 24 Feb 2022