V-shaped Recovery; Maintain BUY

• IHH Healthcare's 3Q20 results rebounded as bulk of the patients returned and we expect earnings to improve on the gradual reopening of borders.
• We maintain our earnings forecasts, BUY call and SOP-based target price of MYR5.95 for IHH Healthcare.
• Stock trades at 12M rolling forward EV/EBITDA of 17x (below its 5Y mean of 21x).

Within Ours But Above Consensus

• Excluding the exceptional items (totalling positive MYR72m), IHH Healthcare turned around with 3Q20 core PATMI of MYR238m (from core LATMI of MYR84m in 2Q20). This brought 9M20 core PATMI to MYR344m (-46% y-o-y) and made up 57%/64% of our/street’s full-year estimates.

Strong Rebound Across All Markets

• Key takeaways on IHH Healthcare's 3Q20 results:
  1. Revenue rebounded by 37% q-o-q (-7% y-o-y) as bulk of the local patients returned to the hospitals. The bed occupancy rates for its key markets improved to 50-65%, representing 70- 90% of pre-COVID 19 level. The revenue intensity dropped 6% q-o-q for Singapore (due to fewer foreign patients) while Malaysia, Turkey and India saw an increase of 2-19% q-o-q on improved case mix and return of foreign patients for Turkey;
  2. EBITDA jumped 3.1x q-o-q on the higher revenue and tight cost control. Though the government grant was lower q-o-q, it still accounted for 11% of Singapore’s EBITDA in 3Q20 and may taper more in 4Q20;
  3. We estimate that GHK’s EBITDA loss has narrowed to just MYR6m (2Q20: MYR40m) on a higher bed occupancy rate of 62% (2Q20: 55%);
  4. We estimate that the EBITDA loss at Gleneagles Chengdu (opened in Oct 2019) was stable q-o-q at MYR9m.

Maintain Earnings Forecasts

• We maintain our earnings forecasts for IHH Healthcare and expect a better 4Q20 as more patients return to the hospitals. Though Malaysia has tightened the movement restrictions from mid-Oct, management do not expect its business at Malaysia to be severely affected.
• Separately, the court hearing for its mandatory takeover of Fortis Healthcare (FORH IN) will take place in Dec 20.

Source: Maybank Kim Eng Research - 27 Nov 2020