IHH Healthcare Is Trading Below Mean Valuation; Maintain BUY

• IHH Healthcare's 1Q21 results was driven by the COVID 19-related services. However, 2Q21 results could be weaker as Singapore and Malaysia (59% of Group’s EBITDA in 1Q21) could be temporarily affected by the renewed lockdowns.
• Maintain our earnings forecasts, BUY call and SOP-based target price of MYR6.30 for IHH Healthcare.
• We like IHH Healthcare for its undemanding 12-month forward EV/EBITDA of 15x (5-year mean: 20x) and clear strategies in raising its profitability.

IHH's Earnings Within Expectation

• Excluding the exceptional items (totalling positive MYR40m), IHH Healthcare's 1Q21 core net profit of MYR336m (+77% y-o-y, -10% q-o-q) accounted for 30% and 33% of our and street’s full-year estimates. We consider the results to be within our expectation as 2Q21 could be sequentially weaker.
• Separately, IHH Healthcare's 12-month trailing ROE of 4.5% (FY20: 3%) is near management’s target of at least 5% by 2024.

1Q21: Strong Y-o-y Growth Across All Key Markets

• Key takeaways on IHH Healthcare's 1Q21 results:
  • On a y-o-y basis, occupancy rates of 54%/43%/62% for Singapore, Malaysia and India remained below pre-COVID-19 level. Meanwhile, Acibadem’s occupancy rate of 75% was higher than pre-COVID 19 level (1Q20: 72%) on the return of the foreign patients (16% of Acibadem’s revenue);
  • All markets revenue of Singapore, India, Malaysia and Acibadem respectively. Additionally, Singapore unit also received government grant of MYR12m in 1Q21 (3% of Singapore’s EBITDA);
  • GHK registered EBITDA loss of MYR25m in 1Q21 (vs. MYR37m in 1Q20) on occupancy rate of 56% (1Q20: 55%) and management expects GHK to achieve EBITDA breakeven by end-FY21.

2Q21: Could be Affected by the Renewed Lockdowns

• We expect the renewed lockdowns at Singapore and Malaysia to adversely affect IHH Healthcare’s higher earnings from COVID-19 related services (i.e. screening, lab test, vaccination) and improvement at India/GHK.

Source: Maybank Kim Eng Research - 1 Jun 2021