• IHH Healthcare (SGX:Q0F) saw sustained recovery across key markets amid moderating COVID-19-related contributions as top-line growth remained resilient. The Gleneagles Shanghai launch in 2H22 is a slight lull but sustained patient admission recovery across all markets should well drive overall earnings growth.
• We continue to like IHH Healthcare for its defensive properties amid capital flight to safety and decent three-year earnings (2021-24F) CAGR of 8.5%. Maintain BUY and target price of RM7.60.

IHH's 4Q21 Beats Expectations

• IHH Healthcare’s 4Q21 core profit grew 18.6% y-o-y and 24.3% q-o-q. It brought full-year 2021 earnings to RM1,595m (+123% y-o-y) and has exceeded both our and consensus’ full-year estimates at 109% and 107% respectively. The positive deviation arose from the sustained COVID-19-related contributions amid a broad recovery of inpatient admissions across most key markets.

Mixed Inpatient Fortunes But Overall Growth Well Sustained in Key Markets

• IHH Healthcare's Singapore operations’ top-line grew 21.8% y-o-y but declined 1.6% q-o-q. The q-o-q decline was due to lower inpatient admissions following a surge in local community cases of COVID-19. However, revenue intensity was supported by a better case mix. COVID-19-related services remained unchanged on a q-o-q basis but is expected to normalise in 2022.
• Contrastingly, Malaysia made further q-o-q progress of 4.6% (20.1% y-o-y) off a 17.9% q-o-q recovery in inpatient admission. The continued recovery more than offset COVID-19-related contributions halving. 2022 should see a sustained recovery as 2021 admitted only 70% of inpatients of pre-COVID levels.

GHK and Acibadem Humming Along

• Gleneagles HK’s (GHK) registered a positive EBITDA of RM2.4m. It has sustained an EBITDA breakeven since May 21. Occupancy rates improved sequentially as well to 65% from 63%. GHK’s gestation should ease expected start-up losses in Gleneagles Shanghai, which is due to commence operations in 2H22.
• Meanwhile, Acibadem’s revenue grew 17% y-o-y off the back of growth in inpatient admissions (21%) and revenue intensity (7.3%) y-o-y. Its lira exposure is further limited with 40% of its revenue now derived from its European operations and Acibadem’s foreign patients.

India Sustained Y-o-y Growth as COVID-19 Contribution Expectedly Moderated

• IHH Healthcare's India operations saw revenue grew 19% off sustained inpatient growth (+14.6%) and higher revenue intensity (3.4%). Its COVID-19-related services continued to moderate to 6% of its revenue (3Q21: 7%).

IHH - Earnings Forecast and Recommendation

• We lift our earnings forecast for IHH Healthcare by 6/5% across 2022-23 off the back of higher revenue intensity and admission volume assumptions. Key downside risks are:
  1. execution risk,
  2. shortfall in turning around Fortis, and
  3. heightened regulatory hurdles. Key upside risks are:
  4. faster-than-expected gestation of GHK, and
  5. sustained growth at core markets.
• Maintain BUY rating on IHH Healthcare with a higher SOTP-based target price of RM7.60 (from RM7.40) on the back of our raised earnings. Our SOTP-based target price implies 38.6x 2022F P/E, below its historical five-year, 12-month forward P/E of 45x. Valuations appear attractive with:
  • resilient yet defensive three-year earnings (2021-24F) CAGR of 8.5%; and
  • IHH Healthcare’s sound track record.
• Earnings drag arising from its North Asia operations has largely diminished while Acibadem’s operations are being increasingly derisked with an increasing proportion of foreign patients. The diminished risks and attractive valuations far exceed the uncertainty and IHH Healthcare’s initial 31% stake that has been brought into question.

Source: UOB Kay Hian Research - 24 Feb 2022