KEY INVESTMENT HIGHLIGHTS

• IHH Healthcare normalised earnings came in at RM189.4m in 1QFY20, growing by +1.0%yoy

• Lower revenue and patients visit recorded across its market due to travel restrictions brought about by Covid19

• Earnings cushioned by higher revenue intensity per patient and strong revenue recognition from Acibadem

• FY20-21F earnings lowered by -23.4% and -10.6% respectively

• Maintain BUY with a revised TP of RM6.34 per share

Below expectations. IHH Healthcare Bhd (IHH) has reported a loss of -RM366.7m in 1QFY20. However, after excluding the exceptional items - impairment on goodwill worth RM400.5m and realisation of RM60.0m foreign currency translation losses; 1QFY20 normalised earnings came in at RM189.4m which was below ours but within consensus’ full-year FY20 earnings estimates at 19.2% and 24.2% respectively. While core performance remained intact, the 1QFY20 earnings was dragged by the outbreak of Covid-19 which has led to the deferment and postponement of medical procedures as well as; lower patients visit to hospitals. This was further exacerbated by the additional costs incurred to implement Covid-19 precautionary and safety measures at all its healthcare facilities.

Loss of patients offset by higher revenue intensity per patient. In 1QFY20, both Singapore and Malaysia markets recorded a contraction in inpatient admissions by -9.6%yoy and -3.6%yoy respectively following travel restrictions imposed to curb the spread of Covid-19 in both countries. This had resulted in the decline in revenue from its Singapore hospitals by -1.0%. However, Malaysian hospitals’ revenue grew by +3.0%yoy despite the contraction in inpatient admission. This was mostly supported by revenue intensity per inpatient which rose by +10.9%yoy in Singapore and +4.2%yoy in Malaysia respectively, driven by the execution of urgent complex cases undertaken during the quarter. Furthermore, we expect the acquisition of Prince Court will contribute positively to the segment’s earning post completion of its acquisition by May 2020 (pending regulatory approval).

Acibadem remains resilient despite weak Turkish Lira. Acibadem’s performance during the quarter had been strong despite operating in the current global pandemic situation and facing a weak Turkish Lira. Acibadem’s revenue (after stripping off the effects of weak TRY translation) grew by +8.0%yoy despite the -4.4%yoy contraction in number of inpatients admitted. Furthermore, its revenue intensity per patient also grew by +14.8%yoy attributable to: (i) more complex cases undertaken during the quarter and; (ii) pricing adjustments made during the quarter to account for inflation

Source: MIDF Research - 30 Jun 2020