9MFY21 Core Net Profit (CNP) of RM1,154m (+236% YoY) came above expectations at 96%/85% of our/consensus full-year forecast. The positive variance from our forecast was due to better-than-expected performance in Acibadem. We highlight that India and Acibadem continued to post strong commendable bottom-line performances in 3QFY21. We upgrade our FY21E/FY22E net profit by 17%/6%. However, due to concerns over the lira, which has weakened in the quarter-to-date, we keep our SoP-TP unchanged at RM6.65. Reiterate Market Perform.

Key results’ highlights. QoQ, 3QFY21 headline revenue rose 4% due to easing of travel restrictions and lockdowns as patients including elective cases gradually returned to the group’s hospitals but this was negated by a sharp decrease of COVID-19-related revenue in India, which outstripped the higher revenues from COVID-19-related services rendered in other markets. COVID-19-related services contributed about between 6%-29% in 3QFY21 (2QFY21: 12%-31%) revenues from the Group’s operations in its home markets. EBITDA was lower by 1% due to lower government grant income, higher staff costs and other operating expenses. Revenue per inpatient admission rose only in Malaysia (+7%) but lower in Singapore (+6%), India (+17%) and flat in Acibadem. Inpatient admission rose in India (+21%),Acibdem (+2%) and Singapore (+2%) but lower in Malaysia (-2%). This brings 3QFY21 Core Net Profit (CNP) to RM355m (-24%) due to losses in Greater China but mitigated by higher bottom-line contribution in Acibadem. No dividend was declared in this quarter as expected.

YoY, 9MFY21 revenue and EBITDA increased by 31% and 73%, respectively, as patient volumes picked up as the lockdowns gradually eased, and to some extent, contribution from delivery of COVID-19- related services and Prince Court Medical Centre. Overall, inpatient admission rose across the board including Singapore (+4%), India (+20%), Acibadem (+16%) but lower in Malaysia (-10%). Similarly, revenue intensity was solid across the board with revenue per inpatient higher in Malaysia (+28%), India (+20%), Acibadem (25%) and Singapore (+3%) as more complex cases were undertaken. 9MFY21 CNP was higher by 236% 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. 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 FY21E/FY22E net profit by 17%/6% to take into account higher contribution from Acibadem.

Maintain MARKET PERFORM. Despite raising Acibadem earnings, we attached a lower PER of 17.5x from 19x for Acibadem to reflect concerns of its weakness in lira recently. Consequently, we keep out SoP-TP of 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 - 30 Nov 2021