Quoting a media release, IHH’s 90%-owned Acibadem is buying 70% of Bel Medic which is a leading private healthcare operator in Serbia. We are positive on this latest acquisition by IHH due to the pent-up demand and ramp-up of the CEE (Central Eastern Europe) region businesses gaining momentum as highlighted in its 4QFY20 results. No changes to our FY20E/FY21E earnings forecasts for now. Reiterate OP. We upgrade our SoP-TP from RM5.85 to RM6.05 and attach a higher EV/EBITDA multiple due to the better outlook.

Further expansion in the CEE region. Quoting a media release, IHH’s 90%-owned Acibadem is buying 70% of Bel Medic which is a leading private healthcare operator in Serbia. Acıbadem Sağlık Hizmetleri ve Ticaret A.Ş. (“Acıbadem”), via its subsidiary, Acıbadem City Clinic B.V. announced that it has signed definitive agreements for the acquisition of Serbian-based Bel Medic Group and its subsidiaries. It operates one hospital and five outpatient clinics. The group will operate under the name “Acıbadem Bel Medic”. The transaction boosts Acıbadem’s beds globally to more than 4,200 across 22 hospitals in 5 countries. The deal is expected to be concluded within three months. We are positive on this latest acquisition by IHH due to the pent-up demand and ramp-up of the CEE (Central Eastern Europe) region businesses gaining momentum as highlighted in its 4QFY20 results. However, no details were available; for us to quantify the earnings impact on our earnings forecasts. This latest corporate development marks IHH’s sixth hospital of Acibadem’s European portfolio and fourth country of operations (3 hospitals in Bulgaria, one each in Netherlands and Macedonia).

Outlook. With the gradual easing of local movement restrictions starting in June 2020, the Group has seen local patient volumes recover and occupancy rising to between 45%-75%. Occupancies at the Group’s hospitals in Malaysia and Singapore recovered to about 64% and 85% of pre-COVID-19 levels in 4QFY20, respectively. The Group took pro-active initiatives to partially mitigate the effects of lower patient volumes by improving case-mix and by providing COVID-19 screening services. COVID-19-related services contributed about 11%, 12% and 21% of the 4QFY20 revenues in Singapore, Central Eastern Europe and India, respectively. In Malaysia, the Group’s hospitals will allocate approximately 10% of bed capacity to treat COVID-19 patients and have also taken in non-COVID-19 patients decanted from public hospitals, and will be setting aside about 200 beds for this purpose. We highlight that foreign patient revenues at the Group’s hospitals in Turkey exceeded pre-COVID-19 levels in 4QFY20 after Turkey reopened its borders on June 2020. Thus far, the group has further deleveraged its non-lira debt in its Turkish operations from EUR288m as at Dec 2019 to EUR37m as at Dec 2020. The group is hopeful and targeting EBITDA breakeven in Gleneagles HK. In India, the group will continue to drive cost savings and ramped up productivity and room to increase bed occupancy ratio, currently averaging 60%. In India, specifically, non-COVID related activities saw month-on-month recovery on inpatient admission. IHH guided that it will try to contain costs for Gleneagles Chengdu while Parkway Shanghai is expected to open in end-2021 or early 2022.

Upgrade from UP to OP. No changes to our FY21E earning forecast. We upgrade our SoP-TP from RM5.85 to RM6.05. We attached a higher EV/Ebitda multiple for Acibadem due to the better outlook.

Key risk to our call is slower-than-expected recovery from the pandemic.

Source: Kenanga Research - 30 Mar 2021