IHH reported FY20 core PATMI of RM708.1m (-23.8% YoY) which was above ours and consensus’ expectations. The deviation was due to stronger-than-expected topline recovery from eased lockdown restrictions. Nonetheless, FY20 was largely affected by Covid-19 pandemic YoY; lower revenue (-10.1%) was due to lesser patients scheduling treatments due to MCOs and travel restrictions. We increase our FY21-22 earnings by 13%-11% to account for stronger recovery in FY21. Post earnings adjustments, our SOP based TP increases to RM5.42 (from RM5.17). Maintain HOLD.

Above expectations. 4Q20 core PATMI of RM374.9m (+54% QoQ, +28.3% YoY) brought FY20’s sum to RM708.1m (-23.8% YoY). Core PATMI was derived after adjusting for net EIs of RM419.2m (impairment, changes in fair value and foreign exchange). The results were above both ours and consensus’ estimates at 150%- 130%. The positive deviation was due to stronger-than-expected recovery at the topline from eased lockdown restrictions.

Dividend. Declared single and final dividend of 4 sen per share going ex on 30 March 2021. (FY19: 4 sen per share).

QoQ. Revenue improved (+7%) thanks to easing lockdown measures and travel restrictions that resulted to more patients coming in as well as scheduling back previously postponed treatments. Inpatient admission volume improved in all segments except for Malaysia (-5.7%) due to CMCO in Nov. Average revenue per inpatient in Europe market showed the most prominent recovery (+8.1%) as Turkey opened their borders to welcome tourist patients. EBITDA increased (+25.1%), while finance costs decreased (-82.4%) thus this led core PATMI to RM374.9m (+54%).

YoY. Revenue fell marginally (-1.8%) due to lower inpatient volumes in all segments; Singapore (-10.8%), Malaysia (-32.3%), India (-18.8%) and Europe (-13.7%) as patients postponed non-urgent treatments and lower foreign patients due to various travel restrictions. However, this was mitigated by the better average revenue per inpatient especially for Malaysia (+29.9%), India (+20%) and Europe (+27.7%), paired with Covid-19 related services rendered (Covid-19 screening & laboratory testing, temperature screenings in Singapore borders and Covid-19 patients). EBITDA was boosted (+15.5%) due to government grants and reliefs paired with lower other operating expenses (-37.7%) thanks to cost containment efforts. Lower finance costs (- 73.1%) was driven by lower borrowing rates. All in, core PATMI improved (+28.3%).

FY20. Revenue of RM13.4bn saw a reduction (-10.1%) mainly due to Covid-19 pandemic (same reason as YoY). IHH recorded lower inpatient volume in all their segments: Singapore (-18.4%), Malaysia (-27.2%), India (-24.7%) and Europe (- 15.7%). Nevertheless, this was slightly cushioned by improvement in average revenue per inpatient in Malaysia (+21.1%) and Europe (+256%). EBITDA mirrored top line (- 12.6%), and consequently core PATMI of RM708.1m (-23.8%).

Outlook. IHH would be focussing on market specific strategies; Singapore to drive up revenue via “super specialisation” while Malaysia would focus on growing via cluster strategy and extending its reach into fast-growing middle income segments. Furthermore, Gleneagles Hong Kong is targeted to breakeven in FY21.

Forecast. We increase FY21-22 earnings by 13%-11% to account for higher revenue expectation as IHH continues to recover from the Covid-19 impact.

Maintain HOLD, TP: RM5.42. Post earnings adjustments, our SOP based TP increases to RM5.42 (from RM5.17). We maintain our HOLD call.

Source: Hong Leong Investment Bank Research - 8 Mar 2021