Analysts remain optimistic on IHH Healthcare on the back of a strong rebound in its normal businesses post-reopening in 2QFY2022, offsetting a significant decline in Covid-19-related services.
CGS-CIMB Research analyst Tay Wee Kuang points out that Covid-19 services only made up 3% of IHH’s 2QFY2022 revenues, compared with 11% in 1QFY2022 and 16% in 2QFY2021. Despite this, IHH’s revenue grew 2.4% y-o-y to RM4.37 billion ($1.36 billion) in 2Q22, indicating a strong recovery in non-Covid-19 revenues that offset the earnings gap from a year ago.
“However, operating metrics suggest further room for organic recovery given that bed occupancies across key operating regions, especially in Singapore and Malaysia, have yet to reach optimal levels, which would support higher patient volumes.
“Revenue per inpatient admission in Singapore, Turkey and Europe is also likely to improve with the further recovery in medical tourism that tends to be more revenue intensive in nature,” says Tay.
All of IHH’s key markets recorded strong revenue intensity in 2QFY2022, particularly Singapore (23% y-o-y) and Turkey (16% y-o-y) while India and Malaysia declined by 15% y-o-y and 7% y-o-y respectively, DBS Group Research analyst Rachel Tan highlights.
She adds that Gleneagles Hong Kong, which opened in March 2017, finally achieved ebitda breakeven in May 2021 and is set to start contributing positively to IHH’s next leg of growth. “Despite the outbreak of Covid-19 in Hong Kong during 1H22, Gleneagles Hong Kong contributed RM5 million in 2QFY22 versus RM0.1 million in 1QFY22 and RM2.4 million in 4Q21. The ramp-up of the hospital has been progressing well and management will likely open beds to 300 by year-end,” says Tan.
See also: Test debug host entity
Although IHH Laboratories saw ebitda margins below pre-Covid-19 levels, management has alluded this to the tapering off Covid-19 tests and expect margins to normalise once business resumes as usual, says Tan.
“IHH has successfully kept ebitda margins quite stable despite inflationary pressures, except in Turkey, which has experienced hyperinflation. However, management may review potential price increases to ease cost inflation pressures, similar to other industries. However, price hikes will be made in a measured way,” she adds.
CGS-CIMB continues to like IHH for its two-pronged approach to support growth — optimisation of existing assets to improve profitability in the near term as well as contribution from its newly acquired assets over the longer term.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
“Apart from the Ramsay-Sime Darby deal for which due diligence has been completed, IHH will also add 52 beds opposite its existing Acibadem Adana Hospital with newly acquired Ortopedia Hospital. IHH has also broken ground for a new medical block at Pantai Hospital Penang in Malaysia that is expected to be completed by end-2024 and is adding a new floor with 42 additional beds to its Fortis Hospital, Mulund, in India,” says Tay.
Tay maintains his “add” call on IHH with a lower sum of parts (SOP)-based target price of RM8.07 from RM8.12 previously.
Meanwhile, Tan is also keeping her “buy” rating on IHH and SOP-based target price at RM7.90/$2.55. She says that IHH is currently trading at a very attractive FY22 EV/ebitda of 14x, close to -2 standard deviation of its historical range and is positioned to ride on the strong pent-up demand from foreign patients when borders reopen.
“Despite some potential macroeconomic headwinds, we believe IHH will continue to ride on the recovery of normal business operations post-reopening,” says Tan.
As at 1.47pm, shares in IHH are trading 5 cents lower or 2.43% down at $1.92.
