1QFY21 Core Net Profit (CNP) of RM336m (+77% YoY; -9.7% QoQ) came in at 36%/33% of our/consensus full-year forecast. We consider the results to be within our expectation in anticipation of slower quarters ahead due to surging COVID-19 cases. We highlight that in 1QFY21, India and Acibadem registered second consecutive quarterly profits. No change to our earnings forecast. Maintain OUTPERFORM and SoP-TP of RM6.05.

Key results’ highlights. QoQ,1QFY21 headline revenue rose 5% but EBITDA decreased 8%. Revenue was higher due to easing of travel restrictions and lockdowns as patients including elective cases gradually returned to the group’s hospitals. However, EBITDA was hit by higher staff costs and lower government grants and reliefs. Inpatient admission fell in Singapore (-4%) and Malaysia (-9%) but chalked higher in India (+10%) and Acibadem (+4%). However, revenue per inpatient admission revenue rose in Malaysia (+7%) and Singapore (+5%). This brings 1QFY21 Core Net Profit (CNP) to RM336m (-9.7%) due to higher effective tax rate of 26% compared to 25% in 4QFY20. India and Acibadem continued to register their 2nd successive quarterly profit. No dividend was declared in this quarter as expected.

YoY, 1QFY21 revenue and EBITDA increased 11% and 31%, respectively, as impact from pandemic was largely offset by delivery of COVID-19 related services and contribution from Prince Court Medical Centre in Sept 2020. Overall, patient volume was softer due to postponement of non-urgent treatment and visits to hospitals and healthcare facilities. Foreign patient volume remained low since March 2020 as a result of the various travel restrictions implemented across the countries the Group operates in. Overall, inpatient admission fell across the board including Singapore (-3%), Malaysia (-30%), India (- 2%) and Acibadem (-2%). 1QFY21 CNP was higher by 77%, mainly boosted by profits from India and Acibadem.

Outlook. Although patient volume is impacted by the resurgence of COVID-19 cases across the globe and by the various movement restrictions implemented, the Group’s diversified earnings base across 10 markets provides it more resilience as key markets are at different phases of the COVID-19 pandemic. 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 between 5% - 17% of 1QFY21 revenues from the Group’s operations in its home markets. In Malaysia, the Group’s hospitals will allocate approximately 10% of bed capacity to treat COVID-19 patients and in May, that was increased to 13% and of also more than doubling of ICU beds committed for COVID-19 patients. We highlight that foreign patient revenues at the Group’s hospitals in Turkey have exceeded pre-COVID-19 levels since 4QFY20 after Turkey reopened its borders on June 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 increase bed occupancy ratio currently averaging at 60%. In India, specifically, non-COVID-19 related activities saw month-on-month recovery on inpatient admission.

Maintain OUTPERFORM. No changes to our earnings forecast. We maintain our SoP-TP of RM6.05. We like IHH for its strong management and well diversified earnings base across several markets.

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

Source: Kenanga Research - 1 Jun 2021