IHH 1H21 core PATMI of RM803.1m (+793.1% YoY) was above expectations, from stronger than expected recovery in patient volumes and revenue per inpatient. We raise our FY21/22/23 forecasts by 43.9%/8.9%/3.8%. After adjustments to our forecasts and rolling over our valuation year to FY22 our TP rises from RM5.90 to RM7.30 based on a SOP valuation methodology.

Above expectations. 2Q21 core PATMI of RM463.3m (+36.5% QoQ, -RM87.3m LATMI YoY) brought 1H21 core PATAMI to RM803.1m (+793.1% YoY), which was above ours and consensus expectations, accounting for 89.9% and 79.0% of ours and consensus FY21 forecasts respectively. Core PATMI was derived after adjusting for net EIs of RM55.8m (changes in fair value of cross currency swaps, exchange loss on net borrowing). The positive deviation was mainly due stronger than expected recovery in patient volumes and revenue per inpatient.

Dividend. 1H21: None. 1H20: None. IHH typically declare dividend once a year in Feb-Apr in the following year.

QoQ. 8.2% revenue increase was from was mainly from Covid-19 related services, which increased in both volume and scope. While inpatient admissions in Singapore (-6%) Malaysia (-7%) and India (-15%) were lower, revenue per inpatient was higher (Singapore +6.8%, Malaysia +3.8%, India +29.5%). All in all, core PATAMI was higher by +36.5%.

YoY. Core PATAMI of RM463.6m (from LATMI of –RM87.3m in 2Q20) was achieve on the back of revenue increase of +66.5%. Note that in 2Q20 key markets Singapore, Malaysia, India and Turkey were experiencing heavy lockdowns, which resulted in patients postponing non-urgent treatments and visits to healthcare facilities. With the gradual easing of lockdowns, admissions in Singapore (+22%), Malaysia (+26%) and India (+46%) were also accompanied by higher revenue per inpatient (Singapore +5.7%, +18.5%, +47.8%). This trend was also seen in Acibadem Holdings (inpatient admissions +49%, revenue per inpatient +22.1%), which saw its EBITDA contribution rise 303.7%. Additionally, IHH also benefitted from a litany of Covid-19 related services including screening, lab testing and vaccination services, which accounted for 12%-31% of total revenues in 2Q21 in key markets.

YTD. Core PATAMI rebounded strongly to RM803.1m (+793.1%) of the back of +34.2% in revenue due to similar reasons mentioned in YoY paragraph.

Outlook. IHH’s profitability is reliant on countries keeping Covid-19 at bay which would eventually lead to rebound in patient volumes. Nevertheless, IHH’ Covid -19 services would not only cushion impact from any further lockdowns, but also provide support to local governments.

Forecast. We raise our FY21/22/23 forecasts by 43.9%/8.9%/3.8% to account for rebounding patient volumes and higher average revenue per patient.

Maintain BUY, TP: RM7.30. After adjustments to our forecasts and rolling over our valuation year to FY22 our TP rises from RM5.90 to RM7.30 based on a SOP valuation methodology.

Source: Hong Leong Investment Bank Research - 27 Aug 2021