IHH 1Q21 core PATMI of RM339.9m (+9.4% QoQ, +91.5% YoY) was above expectations, due to significantly stronger-than-expected increase in average revenue per inpatients in all major markets except Singapore. Our FY21/22/23 forecasts are increased by 12.1%/6.9%/2.1% to account for higher average revenue per inpatient and increased contribution from Covid -19 related services. After adjustments to our forecasts, our TP rises from RM5.62 to RM5.90 based on a SOP valuation methodology. While we expect 2Q21 inpatient occupancy to continue to be sluggish from lockdowns in IHH’s major markets, we expect it to be offset by higher average revenue per inpatient from those with serious and urgent ailments. Upgrade to BUY.

Above expectations. 1Q21 core PATMI of RM339.9m (+9.4% QoQ, +91.5% YoY) was above expectations, accounting for 42.7% and 34.3% of ours and consensus FY21 forecasts respectively. Core PATMI was derived after adjusting for net EIs of RM36.1m (changes in fair value of cross currency swaps, exchange loss on net borrowing). The positive deviation was mainly due to significantly stronger-than expected increase in average revenue per inpatients in all major markets except Singapore.

Dividend. 1Q21: None Declared. 1Q20: None.

QoQ. Revenue rose +4.8% as travel restrictions eased QoQ in a number of countries that IHH operates in, resulting in higher inpatient admissions in India (+10.2%) and Turkey (3.9%). Despite higher revenue, core PATAMI declined -9.4%. This was due to (i) lesser contribution from Singapore (EBITDA: -8.5%) and Malaysia (EBITDA: - 13.8%) from lesser inpatient admissions (Singapore: -4.2%, Malaysia: -9.3%) and (ii) wider losses from the Greater China region due to seasonality, associated with Chinese New Year in 1Q.

YoY. IHH’s attributed increase in revenue (+11.0%) to Covid-19 related services, which included screening, laboratory testing and vaccination services. IHH shared that Covid-19 related services account ed for 16.5%, 16%, 10%, 8% in of revenue in Singapore, India, Malaysia, Turkey respectively in 1Q21. While inpatient volumes have yet to fully recover in the majority of IHH’s major markets (Figure #2-5), higher core PATAMI (+91.5%) was driven by higher revenue per inpatient in most major markets (Singapore: -1.7%, India: +15.2%, Malaysia: +37.6%, Turkey: +28.7%) as patients with more serious and urgent ailments sought treatment at hospitals.

Outlook. We note that all four of IHH’s key markets (Singapore, India, Malaysia, Turkey) have recently tightened lockdown rules in response to the rise in Covid-19 cases. As such, we expect inpatient occupancy rate to remain sluggish going into 2Q21. Despite this, we reckon that this will be offset by higher average revenue per inpatient, as patients with serious ailments will likely have to seek treatment regardless of lockdown measures. Furthermore, given the spike in Covid-19 cases, we expect the contribution of Covid-19 related services to increase 2Q21.

Forecast. We raise our FY21/22/23 forecasts by 12.1%/6.9%/2.1% to account for higher average revenue per patient and increased contribution from Covid -19 related services.

Upgrade to BUY, TP: RM5.90. After adjustments to our forecasts, our TP rises from RM5.62 to RM5.90 based on a SOP valuation methodology. While we expect 2Q21 inpatient occupancy to continue to be sluggish from lockdowns in IHH’s major markets, this should be offset by higher average revenue per inpatient. Upgrade to BUY.

Source: Hong Leong Investment Bank Research - 1 Jun 2021