1HFY21 Core Net Profit (CNP) of RM799m (+7-fold) came above expectations at 87%/73% of our/consensus full-year forecast. The positive variance from our forecast was due to better-than-expected performance in Acibadem and India. We highlight that India and Acibadem continued to post strong commendable bottom-line performances in 2QFY21 and Hong Kong Gleneagles has turned EBITDA breakeven in May 2021. We upgrade our FY21/EFY22E net profit by 30%/21%. Upgrade our SoP-TP from RM6.30 to RM6.65. Reiterate OUTPERFORM.

Key results’ highlights. QoQ, 2QFY21 headline revenue rose 8% due to easing of travel restrictions and lockdowns as patients including elective cases gradually returned to the group’s hospitals, and COVID-19 related services rendered, which increased in both volume and scope. EBITDA was higher by 15% thanks to higher inpatient and revenue intensity across all its key operating markets. Revenue per inpatient admission rose in Singapore (+7%), Malaysia (+4%), India (+30%) and Acibadem (5%). Inpatient admission rose in Malaysia (+7%), India (+15%) and Acibadem (+3%) but lower in Singapore (-6%). This brings 2QFY21 Core Net Profit (CNP) to RM463.6m (+38%) due to a lower effective tax rate of 18% compared to 26% in 1QFY21 boosted by higher bottom-line contribution in India while Gleneagles Hong Kong achieved breakeven EBITDA in May. No dividend was declared in this quarter as expected.

YoY, 1HFY21 revenue and EBITDA increased by 34% and 107%, respectively, as patient volumes picked up as the lockdowns gradually eased to a varying extent, contribution from delivery of COVID-19 related services and from Prince Court Medical Centre. Overall, inpatient admission rose across the board including Singapore (+3%), India (+15%), Acibadem (+19%) but lower in Malaysia (-9%). However revenue intensity was solid across the board with revenue per inpatient higher in Malaysia (+30%), India (+30%), Acibadem (27%) and Singapore (+2%) as more complex cases were undertaken. Inpatient admission rose in Malaysia (+7%) and Acibadem (+3%). 1HFY21 CNP was higher by 7-fold due to low base effect in 1HFY20 but also boosted by profits from Acibadem and India.

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 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. In Malaysia, the Group’s hospitals allocate approximately 10% of bed capacity to treat COVID-19 patients and in May, that was increased to 13% and 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. In India, the group will continue to drive cost savings and ramp 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.

We upgrade our FY21/EFY22E net profit by 30%/21% to take into account higher contribution from Acibadem and India.

Maintain OUTPERFORM. Consequently, we upgrade our SoP-TP of RM6.30 to RM6.65. 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 - 27 Aug 2021