1QFY22 Core Net Profit (CNP) of RM407m (-8% QoQ; +21% YoY) came in within expectations at 27%/25% of our/consensus full-year forecasts. Going forward, the Group is optimistic of the rebound in its non-COVID business; however, it expects some short-term headwinds such as the tapering of COVID-19 related revenues and inflationary pressure. India and Acibadem continued to post commendable bottom-line performances in 1QFY22. We keep our SoP-TP unchanged at RM6.65. Reiterate Market Perform.

Key results’ highlights. QoQ, 1QFY22 headline revenue and EBITDA fell 7% and 11%, respectively. The decline in revenue was due to effects of seasonality and COVID-19 wave where revenue from non- COVID-19 related services decreased across most markets, except for Singapore. However, COVID-19 related services in Singapore were scaled down as the government announced the standing down of COVID-19 testing regime and border controls by stages from February and March 2022. The disposal of Continental Hospitals on 14 December 2021 also led to the decrease in revenue. EBITDA fell 11% as EBITDA margin decreased to 24% in 1QFY22 from 25% in 4QFY21 due to lower revenue, lower government grant and subsidies and higher staff costs, offset by lower other operating expenses. Inpatient admission fell across the board including Acibadem (-5%), India (-11%) and Malaysia (-3%) except for Singapore (+2%). This resulted in 1QFY22 Core Net Profit heading lower by 8% but offset by a lower effective tax rate of 8% compared to 24% in 4QFY22. No dividend was declared as expected.

YoY, 1QFY22 revenue and EBITDA increased 6% and 4%, respectively, as revenue intensity picked up as lockdowns gradually eased, and to some extent, contribution from delivery of COVID-19 related services, and ramp-up of operations in Hong Kong. These were partially offset by the effects from disposal of Continental Hospitals on 14 December 2021 and temporary closure of all clinics in China for a period during March 2022 as a result of spike in COVID-19 cases in Shanghai. Overall, inpatient admission was mixed across the board with Malaysia (+19%) and Acibadem (+11%) higher but declined in Singapore (-6%) and India (-8%). However, revenue per inpatient was solid across the board led by Singapore (+20%), India (+10%) and Acibadem (+20%) but lower in Malaysia (-2%). 1QFY22 CNP was higher by 21% boosted by profits from India and narrower loses in Greater China.

Outlook. Going forward, the Group is optimistic of the rebound in its non-COVID business; however, it expects some short-term headwinds such as the tapering of COVID-19 related revenues and inflationary pressure. The Group has taken pro-active initiatives to partially mitigate the effects of lower patient volumes by improving case-mix and by providing COVID-19 screening services. As borders reopen and restrictions lifted, the Group is ramping up its efforts to improve its core businesses by growing its domestic and foreign patient load back to pre-COVID levels. 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%.

Maintain MARKET PERFORM. We keep our SoP-TP unchanged at RM6.65. Reiterate Market Perform.

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

Source: Kenanga Research - 27 May 2022