We raise our FY22E/FY23E net profit forecasts by 8%/11% premised on higher revenue per inpatient growth in Singapore/Malaysia/Acibadem of 18%/11%/20% from 8%/9%/10% for FY22E. IHH’s investment appeal lies in: (i) its pricing power, as the inelastic demand of healthcare needs provides it with the ability to pass cost through amidst rising inflation; (ii) strong pent-up demand from domestic and international patients of which the group have started seeing in end Mar 2022; and (iii) commanding market position in countries it operates in. BUY with a TP of RM7.20

Demand recovery in 2QFY22 will be stronger than previously assumed as the geographical locations in which IHH operates are exiting the end of the pandemic. There have been strong returns of domestic patients as well as growth in foreign patients in Malaysia and Singapore. In Turkey (80% bed occupancy rate) and Europe, IHH foresees high bed occupancy rate to continue. While in India, it expect gradual improvement of non-Covid patients starting from 2QFY22. The group will continue to drive cost savings and ramp up productivity and increase bed occupancy ratio currently averaging at 60% in India. Gleneagles HK turned positive EBITDA since May 2021 and sustains its growth with EBITDA margin at single digit.

Given the low “price elasticity of demand” of private healthcare services, IHH has been able to pass on cost inflation to customers, as reflected in its rising revenue per inpatient over the past several quarters. In tandem with the stronger-than-expected demand we expect revenue per inpatient to surpass our earlier expectations. In Turkey, price adjustment is based on CPI. However, medical supplies inflation which represents bulk of its cost is less than price inflation and hence, it enjoys the difference which flow through to margins.

Turkey is expected to be classified as a hyper-inflationary economy. As such, Acibadem Holdings may have to apply IAS29 Financial Reporting in Hyperinflationary Economies in 2QCY22. The Group is in the midst of evaluating the implications on its financial reporting. Basically, assets need to be rebased which typically could potentially lead to higher level of depreciation.

Source: Rakuten Research - 20 Jun 2022