IHH reported 2Q22 core PATAMI of RM441.4m (+8% QoQ, -5% YoY), bringing 1H22 core PATAMI to a total of RM849.9m (+6% YoY). The performance came in within both our and consensus estimates, at 49% and 52% respectively. Our 1H22 core PATAMI has been adjusted for EIs and effects of hyperinflationary adjustment that collectively amounts to RM256.5m. We make no changes to our earnings forecasts as results were inline. Maintain BUY on IHH with an unchanged SOP-derived TP of RM7.75, as we continue to favour IHH for its refreshed strategy that will help support sustainable growth over the longer term, despite the short term headwinds faced.

Within expectations. IHH reported 2Q22 core PATAMI of RM441.4m (+8% QoQ, -5% YoY), bringing 1H22 core PATAMI to RM849.9m (+6% YoY). The performance came in within both our and consensus estimates, at 49% and 52% respectively. 1H22 core PATAMI was arrived at after stripping out the effects of hyperinflationary adjustment in Turkey (in accordance to the application of MFRS129) and adjusting for EIs – which both collectively amounts to RM256.5m.

Dividend. None declared. (1Q21: None). 1H21: None. (1H22: None)

QoQ. Revenue grew 5%, supported by inpatient admission growth across most of its key markets (Malaysia: +18%, India: +12%, Acibadem: +3%), while Singapore’s patient footfall was rather flat QoQ (-1%). Revenue intensity wise, Singapore reported an improvement of 8%, while Malaysia (-2%) experienced a slight decline. Acibadem and India saw revenue intensity relatively unchanged. In tandem with stronger topline, core PATAMI reported an 8% growth.

YoY. Despite patient volume chalking strong growth across most segments (Malaysia: +31%, India: +22%, Acibadem: +11%), Group revenue only saw a mere 2% improvement as the effects of stronger patient volume was offset by weaker revenue per inpatient in Malaysia (-7%) and India (-15%. We believe the weaker revenue intensity was a result of patients returning to seek for elective treatments post pandemic. Despite slight improvement in topline, core PATAMI was 5% lower due to higher other operating expenses.

YTD. Revenue growth of 4% was predominantly due to low base effect, as some of its key markets experienced lockdown restrictions in 1H21, which has deterred patients from seeking elective treatments. This is also reflected in its inpatient numbers, whereby Malaysia, India and Acibadem all charted growth of 25%, 6% and 11% respectively. Continuous ramp up of Gleneagles Hong Kong and acquisitions of DDRC SRL and Bel Medic also contributed to the topline growth. All in, core PATAMI also grew at a similar magnitude of 6%.

Outlook. Expect performance going forward to be underpinned by the return of both local and foreign patients, which should help cushion the impact of lower Covid -related revenues. Inflationary pressures are also expected to impact IHH, but we think that the prices could be adjusted accordingly to protect the sustainability of the business.

Forecast. Remain Unchanged.

Maintain BUY, TP: RM7.75. We maintain our BUY rating on IHH, with an unchanged SOP-derived TP of RM7.75, despite short term headwinds resulting from high inflationary environment. We continue to favor IHH for its refreshed strategy that will help support sustainable growth over the longer term.

Source: Hong Leong Investment Bank Research - 26 Aug 2022