IHH recorded a net profit of RM315.4m in 3QFY22, representing a decrease of 11% YoY, mainly due to a lower EBITDA, higher finance costs and higher depreciation and amortisation from MFRS 129-related adjustments. After excluding the effect of MFRS 129, core net profit increased by 6% to RM374.2m. For 9MFY22, IHH’s core net profit decreased by 5% to RM1099.1m, after stripping out the MFRS impact amount to RM58.8m. The results came in within our and consensus estimates at 76% and 73% of full-year numbers respectively. We make no changes to our earnings forecast, maintaining our Outperform rating on IHH with an unchanged SOTP-based TP of RM7.60.

• Results highlight. IHH’s 3QFY22 revenue rose 3.4% YoY to RM4.6bn due to recovery from non-Covid-19 patient revenue, ramp-up of operations at GHK Hospitals and acquisitions of both Bel Medic and Ortopedia in July 2021 and Aug 2022. Revenue intensity increased in Singapore (+32% YoY), India (+8% YoY) and Turkey and Europe segment (45% YoY). This was mainly due to an increase of acute patients seeking treatment in Singapore hospital while the increase in India was mainly due to continuing return of patients and improvement in operational performance, and the increase in Turkey and Europe segment was mainly caused by the price adjustment to counter inflation. Meanwhile, Malaysia recorded a drop of 16% YoY in revenue intensity as some returning patients sought less acute treatments. The number of inpatient admissions in 3QFY22 improved YoY in both Malaysia (+57% YoY) and India (+6% YoY), but was lower in both Singapore (-4% YoY) and Turkey and Europe segment (-1% YoY).

• 3QFY22 EBITDA dropped by 7% YoY to RM1.0bn, after stripping out the effect of MFRS 129, mainly due to higher base in Q3FY21 that saw a RM65.2m valuation gains on investment properties and a weaker Lira affecting contributions from Turkey operations. EBITDA margin dropped 1.1ppt to 21.8% QoQ, mainly due to higher operating expenses, especially staff costs due to shortage in nursing staff.

• Outlook. With the ease of Covid-19 restriction, IHH has seen a growing demand for elective procedures, together with an increase in both local and foreign patient volumes, which helps to mitigate the lower revenues from Covid-19 related services. However, we believe inflationary pressure on nursing staff costs and energy cost will lead to a lower margin in the short term. We are optimistic that long-term earnings trajectory remains intact, supported by management proven track record in controlling cost as well as the support by mega trends such as ageing population as well as rising consumer’s affluence.

Source: PublicInvest Research - 30 Nov 2022