Trading at -1SD to Mean; Maintain BUY

• IHH Healthcare's weak 2Q20 results were due to the plunge in patient volumes. However, bulk of the patients has returned and a full recovery could materialise in 4Q20. We lower our FY20-22E EPS by 15%/3%/4% on lower patient volume and lower EBITDA margin assumptions. Consequently, our SOP-based Target Price is lowered to MYR5.95 (-2%).
• IHH Healthcare trades at 12M rolling forward EV/EBITDA of 18x (on par to its -1SD to 5-year mean) and could re-rate on earnings recovery ahead.
• Maintain BUY.

IHH's 2Q20 Below Expectations

• Excluding the exceptional items (totalling negative MYR37m), IHH Healthcare's 2Q20 core LATMI was MYR84m (1Q20: MYR189m core PATMI). This brought 6M20 core PATMI to MYR105m (-76% y-o-y) and made up 15%/14% of our/street’s full-year estimates.
• The shortfall against our estimates was due to the lower-than-expected EBITDA margin. However, 2Q20 EBITDA and FCF were still positive at MYR268m and MYR140m respectively.

Weak Showing Across Home Markets

• Key takeaways from IHH Healthcare's 2Q20 results:
  • Lower revenue (-28% q-o-q) was due to a plunge in inpatient volume (SG: -25% q-o-q, Turkey: -36%, MY: - 40%, India: -43%), but cushioned by a higher revenue intensity (higher proportion of acute surgeries);
  • EBITDA margin fell sharply to 10% (- 10.2-ppt q-o-q) given the high fixed costs. IHH Healthcare received various government aids (wage support scheme, property rebates, debt servicing holiday) across all markets but this is expected to taper down significantly from 3Q20;
  • GHK’s performance was stable q-o-q with its occupancy rate at 55% and LBITDA at MYR40m;
  • Gleneagles Chengdu (opened in Oct 2019) posted start-up loss of MYR9m. GHK and Gleneagles Chengdu could be ramped up in FY21E, which could narrow the losses.

Lowering Earnings Estimates

• We cut our IHH Healthcare's FY20-22E EPS forecasts by 15%/3%/4% as we:
  1. Update for its latest run rates;
  2. Reduce our inpatient volume by 4-10% and EBITDA margin assumptions by 2.5-3.5-ppt at its home markets in FY20E.

Source: Maybank Research - 28 Aug 2020