Analysts from CGS-CIMB Research, DBS Group Research and UOB Kay Hian are positive on IHH Healthcare’s results, as it reverses out of the red for the 1HFY2021 ended June.
On Aug 26, the healthcare group reported earnings of RM858.9 million ($277.1 million) for the half-year period, compared to its RM440.4 million loss in the 1HFY2020.
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CGS-CIMB analysts Eing Kar Mei and Tay Wee Kuang have kept their “add” recommendation on IHH Healthcare with an unchanged target price of RM6.91.
The analysts have also kept their earnings per share (EPS) estimates unchanged for the FY2021 to FY2022 unchanged pending the company’s briefing.
That said, the counter is now trading at an “attractive valuation” of more than 1 standard deviation (s.d.) below its five-year historical mean.
“We continue to like IHH for its diversified geographical reach,” write Eing and Tay in an Aug 27 report.
“While revenue came in largely in line at 54% of our full-year forecast, we underestimated the EBITDA for India and Singapore as well as overestimated its net finance cost,” they add.
Although medical tourism has been curtailed and remains so in most places due to the Covid-19 pandemic, Eing and Tay expect patient volume to recover gradually on the back of growing Covid-19 vaccination rates.
“Greater China remained the only market to report an EBITDA loss in 1HFY2021 but the losses narrowed from RM116 million in 1HFY2020 to just RM14 million in 1HFY2021. Gleneagles Hong Kong achieved EBITDA breakeven in May; we see continuous EBITDA growth ahead as operating efficiency increases,” they write.
A re-rating catalyst for the stock is stronger-than-expected inpatient volumes and revenue intensity.
Meanwhile, the converse is true, for downside risks to the counter.
DBS analyst Rachel Tan has, too, kept “buy” on IHH Healthcare.
At present, the counter is trading at a “very attractive” FY2022 EV/EBITDA of 14 times, close to -2 s.d. of its historical range.
“[IHH] is positioned to ride on the strong pent-up demand from foreign patients when borders reopen,” says Tan.
Furthermore, IHH, with strong platforms in India and China, now has exposure to Asia’s two largest economies. India and China also have the highest growth potential in the healthcare sector, she adds.
As such, Tan has raised her target price to RM7.20, or $2.32 from RM6.15 or $2 previously.
Tan has also upped her forecasts for FY2021 to FY2022 by 45% to 55% based on sum-of-the-parts (SOTP) valuation methodology by geography.
“We applied EV/EBITDA multiples ranging from 10-20 times based on its various geographical markets,” she writes.
To Tan, IHH’s medium-term outlook is bright as it rides out near-term headwinds and gestation periods for the new hospitals. Its exposure to the Indian and Chinese markets would further elevate its long-term prospects, she says.
However, new waves of Covid-19 infections, a slowdown in the global economy, weaker-than-expected performances especially in new markets, as well as changes in government policies could be downside risks for IHH.
Finally, UOB Kay Hian analyst Phillip Wong has maintained “buy” with a higher target price of RM6.40 from RM5.70 previously.
“Our SOTP-based target price implies 42.6 times FY2022 P/E, below its historical 5-year, 12-month forward P/E of 46 times,” he writes in an Aug 27 report.
He has also raised his earnings estimates for the group by 20%, 9% and 6% for the FY2021, FY2022 and FY2023 respectively. The higher estimates include higher inpatient admissions and better margins.
According to his estimates, IHH’s core profit for the 2QFY2021 “well exceeded expectations” for both the brokerage and consensus.
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To be sure, IHH’s core profit of RM463.6 million stood at 80% of UOB Kay Hian’s FY2021 estimates, and 73% of consensus’ full-year estimates.
“Non-COVID-19 patient admission was surprisingly robust while GHK achieved operational breakeven. While pandemic-related contributions are expected to normalise, this is balanced by turnaround in GHK and Acibadem’s operations have been de-risked significantly,” he writes.
Like his fellow analysts, Wong deems IHH’s valuations as attractive with “resilient yet defensive” three-year earnings compound annual growth rate of 25.6% from FY2020 to FY2023. IHH’s sound track record is also a contributor to Wong’s positive sentiment on the counter.
“Earnings drag arising from its North Asia operations have been addressed while Acibadem’s operations are being increasingly de-risked with an increasing foreign patient mix. The diminished risks and attractive valuations far exceed the uncertainty revolving around Fortis and IHH’s initial 31% stake that has been brought into question,” he says.
That said, key downside risks, to Wong, are execution risk, a shortfall in turning around Fortis and heightened regulatory hurdles.
As at 4.11pm, shares in IHH are trading 5 cents lower or 2.45% down at $1.99 on the SGX, or RM6.40 on Bursa Malaysia. According to DBS’s estimates, IHH is trading at an FY2021 P/B of 2.2 times with a dividend yield of 0.7%.
Photo: IHH
