IHH’s recorded a core net profit of RM799.4m in 1HFY21, representing a strong growth of 660% YoY, mainly due to a low base effect as its operations were adversely affected in 1HFY20, given the implementation of movement restriction in its key markets. The results came in above both our and consensus estimates at 85% and 73% of full-year forecasts respectively and the discrepancy in our forecast was mainly due to the lower-than-expected operating expenses, given the Group’s continuous efforts in optimizing costs. We raise our earnings estimates for FY21-23F by 19-33%, as we lower our operating expense assumption and our TP is subsequently raised to RM6.80. We maintain our Outperform rating on IHH.

• Patient volume recovery and revenue intensity growth. IHH’s 2QFY21 revenue saw a 66% YoY growth to RM4.3bn. Recall that IHH’s inpatient volumes were adversely impacted by the implementation of movement restrictions across its key markets in 2QFY20, hence the strong revenue reported in the current quarter was mainly due to a gradual recovery in patient volume (Singapore: +22% YoY, Malaysia: +26% YoY, India: +46% YoY, Acibadem: +49% YoY) as well as higher contribution from Covid-19 related services (accounting for 12-31% of its respective home markets’ 2QFY21 revenue). Revenue intensity also continued to grow across all geographical locations (Singapore: +5.7% YoY, Malaysia: +18.5% YoY, India: +47.8% YoY, Acibadem: +22.1% YoY), due to higher number of complex cases performed and an upward price revision in Acibadem to combat inflation. On a side note, the inclusion of Prince Court Medical Centre (PCMC) also contributed to the boost in revenue.

• Tight cost control continues to bear fruit. IHH’s 2QFY21 EBITDA grew by 314% YoY to RM1.1bn, owing to better operational efficiency as patient volume and occupancy rate improves (Singapore: 55%, Malaysia: 48%, India: +68%, Acibadem: 78%). Stringent cost control also resulted in EBITDA margin expansion of 16ppts YoY to 26% in 2QFY21. EBITDA losses for Gleneagles Hong Kong narrowed to RM2.8m during the quarter and it has achieved breakeven at EBITDA level in the month of May.

• Maintain Outperform. We raise our earnings forecast for FY21-23F by 19-33% as we impute a lower operating expense assumption to better reflect the Group’s cost optimisation efforts. With a 16.4% upside, we maintain our Outperform rating on IHH, with a higher TP of RM6.80.

Source: PublicInvest Research - 27 Aug 2021