• Keep BUY with a higher SOP-derived MYR7.60 TP from MYR7.50, 17% potential upside with c.1% yield. IHH Healthcare’s 1Q22 earnings exceeded expectations, due to the better-than-expected performance mainly from the market in Malaysia, while its other markets remained resilient. We believe that its recovery remains on track, complemented by its appetite for growth via strategic acquisitions to develop its high-margin diagnostics business. The report marks the transfer of coverage to Alexander Chia.

• Earnings beat expectations as its 1Q22 core net profit of MYR432m (+28.6% YoY) made up 27% of both our and Street’s FY22F estimates. The positive results were mainly backed by stronger performance from its Malaysia operations, offset by temporary closure of clinics in China due to lockdowns, as well as a weakening Turkish Lira (TRY).

• Singapore: EBITDA dropped 4% YoY despite an 8% increase in revenue. We believe this is likely due to lower COVID-19 related revenues as well as higher operating costs. We anticipate contribution from COVID-19 related revenue will taper off in coming quarters, given further easing of COVID-19 related border measures, where no quarantine, testing, and entry approvals are required for fully-vaccinated travellers.

• Malaysia: Recovery expected. Revenue intensity dropped 1.7% YoY, which was more than offset by growth in inpatient admissions (+19% YoY) post lifting of the MCO. This led to a 28% growth in EBITDA. We continue to expect the pace of recovery to pick up in subsequent quarters supported by increasing medical tourism, given the reopening of borders from 1 Apr.

• India’s performance remained resilient. Despite a flattish occupancy rate, EBITDA for operations in India went up 16% due to higher revenue intensity (10% YoY) and consolidation of contribution from its acquired DDRC SRL. On top of that, its huge scale in India allows IHH to better manage rising operational costs. We anticipate better recovery of its business-as-usual services with lower COVID-19 related revenues in coming quarters.

• Turkey: Acibadem was weaker YoY. Despite higher patient admissions as well as revenue intensity, a weakening TRY vs MYR eroded its revenue and earnings (both -4% YoY). However, we remain optimistic on Acibadem’s earnings through IHH’s continuous efforts to expand its non-TRY contributions (45% in 1Q22 vs 41% FY21).

• We revise our FY22-24F earnings by -2% to 2%, after revising patient admissions and revenue intensity across segments to better reflect its 1Q22 performance.

• BUY with a higher TP of MYR7.60. This counter is still trading at an undemanding 13x FY23F EV/EBITDA (-1SD of its 5-year mean). We ascribed a 0% ESG discount/premium to our intrinsic, as its ESG score is in line with the country median.

• Key downside risks: Unfavourable Supreme Court ruling, lower than expected patient volume/revenue intensity, and higher than expected operating costs.

Source: RHB Research - 27 May 2022