2QFY20 core loss of -RM87.3m (vs. 1QFY20: RM177.3m vs. 2QFY19: RM229.4m) brought 1HFY20 core PATMI to RM89.9m (-79.1% YoY). The results came in below both ours and consensus expectations. The deviation was due to lower than expected revenue and higher than expected costs incurred. YTD, revenue fell with lower inpatient admission volume in all segments. This was mainly due to Covid-19 pandemic; MCO and travel restrictions. We expect IHH to be impacted for the rest of FY20, however we are hopeful on some improvements in the coming quarters as patients’ volumes are picking up. We cut our FY20-22 forecasts by -22%/-20%/-19% to reflect in lower revenue due to Covid-19/MCO. Post earnings adjustments, our SOP based TP reduces to RM5.02 (from RM5.21). Maintain HOLD.

Below expectations. 2QFY20 core loss of -RM87.3m (vs. 1QFY20: RM177.3m vs. 2QFY19: RM229.4m) brought 1HFY20 core PATMI to RM89.9m (-79.1% YoY). Core PATMI was attained after adjusting for net EI of -RM350.1m (amongst others, impairment, changes in fair value of cross currency swaps and foreign exchange). The result was below ours and consensus forecasts at 10% and 12% respectively. The deviation was mainly due to lower than expected revenue contribution and higher than expected costs, resulted from Covid-19 pandemic/MCO, despite earlier cuts in forecasts. No dividend was declared.

QoQ. Revenue fell (-27.8%) to RM2.6bn as a result of the Covid-19 pandemic that caused lower patient volumes (patients postponed non-urgent treatments and lower foreign patients due to various travel restrictions), and was felt the most in Apr and May. Inpatient admission volume fell in all segments; Singapore (-25%), Malaysia (-40%), India (-43%) and Acibadem (-36%). Nevertheless, this was partially cushioned by the increase in average revenue per inpatient in Singapore (+2%), Malaysia (+21%) and Acibadem (+11%). EBITDA decreased significantly (-63.6%) that led to IHH seeing a core loss of -RM87.3m (vs. 1QFY20: RM177.3m).

YoY. Revenue declined (-29.6%) mainly due Covid-19 that resulted to lower patient volumes (same reason as above). However, this was partially cushioned by Covid -19 related services that IHH offered, which includes; (i) screening and laboratory testing (Malaysia and Singapore), (ii) care for stable Covid-19 patients (Singapore), (iii) borders’ temperature screening (Singapore) and (iv) care for walk-in Covid-19 patients (Turkey and India). Inpatient admission volume was lower in all segments; Singapore (-34%), Malaysia (-43%), India (-45%) and Acibadem (-34%). Yet, this was slightly mitigated by the increase in average revenue per inpatient in Singapore (+9%), Malaysia (+22%) and Acibadem (+14%). EBITDA was dragged (-65.4%) by additional costs to implement Covid-19 precautionary measures at Group’s hospitals even though it was partially mitigated by government grants and reliefs. Core loss of -RM87.3m was reached following the above (vs. 2QFY19: RM229.4m).

YTD. Revenue of RM6,120.3m saw a reduction (-16% YoY) mainly due to Covid-19 (same reason as YoY). IHH recorded lower inpatient admission volume in all their segments; Singapore (-22%), Malaysia (-24%), India (-23%) and Acibadem (-19%). However, this was slightly cushioned by the increase in average revenue per inpatient in Singapore (+10%), Malaysia (+14%) and Acibadem (+13%). EBITDA was impacted (-35.7% YoY) by higher operating expenses (+36%) on extra costs incurred on the implementation of Covid-19 precautionary measures, even though it was partially cushioned by government grants and reliefs. Core PATMI of RM89.9m was reached (- 79.1% YoY) following the above.

Outlook. We expect IHH to be impacted for the rest of FY20, however we are hopeful on 2H to improve while seeing Jun saw some revival in patients scheduling treatments and expect improving revenue from foreign patients with the gradual opening of international borders. We further gather improvement in occupancies in all segments; Malaysia, Singapore and Turkey recovered to c.80% while India recovered c. 65% of pre-Covid-19 levels.

Forecast. We cut our FY20-22 forecast by -22%/-20%/-19% to reflect in expected lower revenue contribution and higher costs due to Covid-19/MCO impact.

Maintain HOLD, TP: RM5.02. Post earnings adjustments, our SOP based TP reduces to RM5.02 (from RM5.21). Despite the results shortfall, preliminary guidance in 2H so far indicates an improvement, signalling that the worst could be over. Maintain HOLD

Source: Hong Leong Investment Bank Research - 28 Aug 2020