IHH recorded a core net profit of RM1,154m in 9MFY21, representing a strong growth of 236% YoY, mainly due to a low base effect as its operations were adversely affected in 9MFY20, given the implementation of movement restriction in its key markets. The results came in above both our and consensus estimates at 93% and 85% of full-year forecasts respectively and the discrepancy in our forecast was mainly due to the lower-than-expected operating expenses and higher-than-expected revenue. We raise our FY21F earnings forecast by 15% after factoring in higher revenue and lower operating expenses. However, our FY22-23F forecasts are reduced by 2-4% as we factor in the impact of Cukai Makmur and withdrawal of tax exemption on foreign-sourced income. Our SOTP based TP is subsequently raised from RM6.80 to RM7.50, based on 2-year forward average EBITDA. We maintain our Outperform rating on IHH.

• Results highlight. IHH’s 3QFY21 revenue saw a 26% YoY growth to RM4.4bn. The strong revenue reported in the current quarter was mainly due to growth in revenue intensity across all geographical locations (Singapore: +5.8% YoY, Malaysia: +25.1% YoY, India: +3.2% YoY, Acibadem: +21.7% YoY). This was due to higher number of complex cases performed and an upward price revision in Acibadem to combat inflation as well as higher contribution from Covid-19 related services (accounting for 6-29% of the respective home markets’ 3QFY21 revenue). On a side note, the inclusion of Prince Court Medical Centre (PCMC) and Bel Medic (DDRC SRL) also contributed to the increase in revenue.

• Tighter cost control continued to bear fruit. IHH’s 3QFY21 EBITDA grew by 32% YoY to RM1.1bn, driven by higher revenue and better operational efficiency as patient volume and occupancy rate improved across all the geographical areas except for Malaysia where it posted a slight decline from 50% to 48%. However, this was partly offset by higher staff cost and lower government grant income. The increase in staff cost was mainly due to higher salary cost for doctors and provision of bonus for staff. Despite that, EBITDA margin increased by 1ppt YoY to 25%. We also noted that Gleneagles Hong Kong started to deliver positive EBITDA in 3QFY21 from an EBITDA loss of RM2.8m in 2QFY21.

• Earning adjustment. IHH’s FY22-23F earnings are expected to be affected by the introduction of Cukai Makmur in 2022 and the withdrawal of tax exemption on foreign-sourced income effective January 2022. Consequently, our FY22-23F forecasts are reduced by 2-4%. However, for FY21F, we raise our forecast by 15% due to higher revenue assumption and lower operating expenses.

Source: PublicInvest Research - 30 Nov 2021