• 1H22 core net profit of RM724.9m was broadly in line with expectations at 46.1%/44.1% of our/Bloomberg consensus full-year estimates.
• Turkey is classified as a hyperinflationary economy, leading to one-off gain of RM294.6m in 2Q22; we see higher depreciation/amortisation in the future.
• Reiterate Add with unchanged SOP-based TP of RM8.12. It could see share price weakness from uncertainty of contribution from Turkey moving forward.

Resilient quarter with stronger signs of recovery

2Q22 revenue grew 2.4% yoy to RM4.37bn, bringing 1H22 revenue to RM8.54bn, in line with expectations at 50.4% of our and 47.5% of Bloomberg consensus full-year estimates. Malaysia was the key revenue driver, with revenue up 15.1% yoy to RM759.9m as inpatient admissions grew 31% yoy and bed occupancy improved from 48% a year ago to 61% amid the easing of movement controls. Revenue was generally flat across other geographies, though bed occupancies improved in Singapore (+1% pt yoy to 56%) and India (+1% pt yoy to 69%), offsetting lower Covid-19-related contributions; in particular, IHH said its laboratory business (spread across its operating geographies) saw revenue/EBITDA decline 28%/62% yoy to RM391.6m/RM75.4m. We believe IHH could see continued improvement qoq in 3Q22F as occupancies normalise, as we estimate that Covid-19-related contributions should have been negligible in 2Q22.

MFRS 129 likely to have negative impact on future earnings

Despite the resilient revenue in 2Q22, core net profit declined 31.5% yoy to RM317.5m due to the adoption of Malaysian Financial Report Standard (MFRS) 129 fo llowing the classification of Turkey as a hyperinflationary economy by accounting firms. Nevertheless, 1H22 core net profit came in broadly in line with expectations at 46.1%/44.1% of our/Bloomberg consensus FY22 estimates. The MFRS 129 adoption negatively impacted IHH’s 1H22 core net profit by RM130.1m (Fig 1) largely due to higher depreciation and amortisation expenses; otherwise 1H22 core net profit would have been RM855.0m, at 54.3%/52.1% of our/consensus FY22 estimates. We project higher depreciation and amortisation expenses moving forward, offsetting the one-off gain of RM294.6m recognised in 2Q22 on revaluation of assets due to Turkey’s hyperinflationary economy.

Maintain Add, with TP of RM8.12; pockets of growth available

We keep our Add call with an unchanged SOP-based TP of RM8.12 as we await more clarity from its analyst briefing today. We think IHH’s core business will see continued improvement in 2H22F as patients continue to return. Furthermore, IHH on 9 Aug signed an agreement to purchase Orthopedia Hospital in Adana, which will strengthen its cluster strategy in Turkey. This is on top of its existing slew of expansion plans, including the opening of hospital Acibadem Atasehir scheduled in 2H22 and the Ramsay-Sime-Darby deal, which could add seven hospital assets to its portfolio. Re-rating catalysts: strongerthan-expected contribution from newer assets; downside risks: Ramsay-Sime Darby deal falling through and negative impact of Turkey’s hyperinflationary economy.