• IHH’s 4Q20 core net profit rebounded by 56% qoq to RM372m (+28% yoy) on higher revenue and strong increase in profit margin
• Cumulatively, 2020 core net profit of RM715m (-22% yoy) was grossly above market and our expectations due to higher-than-expected profit margin
• We raise our 2021-22E earnings forecasts by 13-15% and PT to RM6.40. Maintain BUY. We like IHH for its leading position as a premium private healthcare provider in countries where healthcare demand is underserved

4Q20 core profit rebounded by 56% qoq on higher revenue, improved margin

IHH reported a strong set of results – 4Q20 core net profit rebounded by 56% qoq to RM372m (+28% yoy) on the back of higher revenue (+7% qoq) and higher EBITDA margin of 27.6% due to proactive cost containment measures and the receipt of government grants / relief. The group recorded higher revenue across all key markets, driven by higher revenue per inpatient admission and higher inpatient arrivals (except Malaysia). Meanwhile, aggressive cost containment measures have lifted the profit margin, especially in India, Achibadem and Hong Kong operations.

The Results Were Grossly Above Market and Our Expectations

Cumulatively, IHH’s full year core net profit of RM715m (-22% yoy) was 38% above consensus and 27% above our full year earnings forecasts. While 2020 revenue of RM13.4bn was within our expectations, its profit blew passed our forecasts due to higher-than-expected EBITDA margin arising from aggressive cost containment and receipt of government grants / relief. While it may be a tall order for IHH to maintain the EBITDA at 4Q20’s 27.6%, we believe the group’s strong cost savings measures and the increased revenue per inpatient admission should lift its 2021-22E margin from the low twenties to mid-twenties.

Maintain BUY With a Higher Price Target of RM6.40

We have raised our 2021-22E EPS forecasts by 13-15% after incorporating higher EBITDA margins in view of the strong 2020 earnings and in anticipation of further cost savings initiatives (ie. IHH targets to save RM100m in 2021 with group’s procurement synergy programme). In tandem, we raised our SOTP-derived price target to RM6.40 (from RM6.10). Maintain BUY. We continue to like IHH for its leading position as a premium private healthcare provider with growing presence in countries where healthcare demand is underserved. Key downside risk is major earnings disappointments.

Source: Affin Hwang Research - 1 Mar 2021