DBS: IHH Healthcare Bhd – BUY TP $2.32

FY21 Results Analysis: Springing back to health

• Stellar FY21 results, in line, with contribution from COVID-19 services, Gleneagles HK EBITDA contribution and rebound in non-COVID businesses (4Q21 revenue ex COVID-19 services is close to pre-COVID levels) 
• Key positives: i) strong rebound in Malaysia post MCO; ii) India performance held up in 2^nd quarter after delta wave; iv) higher dividend of 6 sen 
• Key negatives i) Malaysia and Singapore occupancy is still below pre-COVID levels, ii) COVID-19 service tapering off 
• Maintain BUY; TP of RM7.20. As seen in some markets, we believe IHH stands to benefit from strong rebound as the world emerges from the pandemic with added booster from the return of medical tourism. Trades at attractive 15x FY22F EV/EBITDA, -1.5 SD of historical range.

Stellar FY21 results; Gleneagles HK contributed positive EBITDA in 2H21; non-COVID revenue is close to pre-COVID levels. 

• IHH recorded stellar FY21 net profit of RM1,863m vs RM289m in FY20. Excluding exceptional items, FY21 core profits more than doubled y-o-y to RM1,595m, in line with our estimates mainly due to revenue contribution from COVID-19 related services, pick-up in patient volumes post the various lockdowns and lower gestation losses from Gleneagles HK. 
• FY21 Revenue grew 28% y-o-y to RM17.1bn as all key markets recorded higher y-o-y revenue ranging from 25% to 40%. Excluding COVID-19 related services, we estimated that FY21 revenue grew by 10% y-o-y (COVID-19 related services from key markets is estimated to contribute c.12% of the Group’s revenue). 
• We estimate that FY21 revenue (ex-COVID-19 related services) is close or marginally surpassed that of pre-COVID levels (FY19).
• FY21 EBITDA +49% y-o-y to RM4.3bn as all key markets saw strong growth especially India (which recorded RM667m vs RM201m in FY20), Turkey & EU (+51% y-o-y), and lower gestation losses from Greater China (+53% y-o-y).
• Similarly, 4Q21 core net profit +19% y-o-y to RM441m . 4Q21 core net profit is 52% above pre-COVID levels (4Q19).
• On q-o-q basis, 4Q21 saw revenue and EBITDA grew 1% and 2% respectively. Excluding COVID-19 related services, revenue grew 3%, with strong recovery from non-COVID-19 related businesses especially from Malaysia (+17% q-o-q).
• 4Q21 EBITDA margins was stable q-o-q at 25%. All key markets saw improved margins with Singapore recorded the highest improvement from 28% to 37% mainly due to higher revenue intensity +17.5% with more acute cases in 4Q21.   
• Compared to pre-COVID levels, 4Q21 and FY21 revenue was 17% above pre-COVID (vs 4Q19 and FY19) respectively. However, if we exclude revenue from COVID-19 related services in key markets, 4Q21 and FY21 revenue is estimated to be 2.2% above and flat compared to pre-COVID respectively. Similar to the trend we saw in 3Q21 for India, Malaysia saw a strong recovery post Delta wave stabilised 
• We note that in 4Q21, IHH made a writeback of RM11.5m on Gleneagles Chengdu. As such, total impairment in FY21 would be RM230m.
• Following the strong results, ROE continue to trend upwards to 8.4% vs 8.2% in 3Q21 and 4.5% in 1Q21, which is already above the 5-year target of > 5%.
• Raised FY21 dividend to 6 sen, +50% vs 4 sen in FY20. 

Key operational highlights.

1. 4Q21 occupancy stable q-o-q; Malaysia and Turkey saw a good jump in occupancy led by rebound post lockdown in Malaysia; strong revenue intensity in Singapore (+17.5% y-o-y)
2. COVID-19 services -15% q-o-q held up by Singapore; expect to taper off as the world emerges from the pandemic.
3. Gleneagles HK EBITDA contribution expanded q-o-q to RM2.4m vs RM2.2m in 3Q21
4. Parkway Shanghai Hospital expected to open in 3Q2022

• 4Q21 occupancy remained relatively stable q-o-q; Malaysia (rebound post MCO) and Turkey saw a jump in occupancy. 4Q21 occupancy remained relatively stable q-o-q except Malaysia and Turkey saw a jump to 52% and 81% vs 48% and 75% respectively. Malaysia and Singapore were still below pre-COVID levels (-19% and -12ppt respectively). 4Q21 inpatient volume saw double digit y-o-y growth across all key markets except Singapore (-11% y-o-y). On a q-o-q, Malaysia and Turkey saw strong growth at 18% q-o-q and 11% q-o-q respectively. Malaysia saw strong rebound after MCO ended in 3Q21.

• Singapore was held up by strong revenue intensity. All key markets saw higher revenue intensity particularly from Singapore (+17.5% y-o-y), Turkey (+7.3% y-o-y; partly from price increase for inflation), led by more acute cases (warding of MOH COVID-19 patients with more acute cases in Singapore). 

• 4Q21 COVID-19 services -15% q-o-q; likely to taper off as the world emerges from the pandemic. Contribution from COVID-19 related services fell 15% q-o-q contributing c.25% of total revenue vs 15% in 3Q21 and 12% in 1Q21. Singapore remained high at 29% while the rest of the key markets has dropped to single digit. IHH continue to support the government in its key markets on COVID-19 efforts. However, as the world emerges from the pandemic, COVID-19 services will likely taper off.  

• Gleneagles HK EBITDA contribution expanded q-o-q to RM2.4m. Gleneagles HK 4Q21 EBITDA expanded to RM2.4m from RM2.2m in 3Q21. Operational metrics remained stable with occupancy up to 65% vs 63% in 3Q21 and revenue intensity improved 6.5% y-o-y. 

• Turkey’s foreign patients grew marginally to 13% of revenue. Turkey’s foreign patients contribution expanded marginally to 13% vs 12% in 3Q21 of Turkey’s YTD revenue. Its European operations continue to expand to 28% vs 23% in FY2019 (pre-COVID).    

• New development. Acibadem Atasehir Hospital (180-bed) and Parkway Shanghai Hospital (450-bed) expected to open in 3Q2022. IHH is building a one-stop multi-disciplinary medical centre at Woodleigh Mall in Singapore which will feature an in-house radiological unit, expected to open by 2023.  

• IHH celebrates 10^th year anniversary as a listed company in 2022. IHH celebrates its 10^th year anniversary as a listed company in 2022 with a new “Care. For Good” strategy, driven by five growth engines, anchored on trust, supported by operational synergy on a global scale and made sustainable.

Maintain BUY; TP of RM7.20. We maintain our BUY rating; TP of RM7.20 on IHH. Despite COVID-19 services tapering off, IHH saw markets rebounded strongly post lockdown or stabilization of new variants. As such, we believe IHH is poised to benefit from reopening and recovery from the pandemic with potential booster from medical tourism returning with a vengeance. 

IHH currently trades at attractive levels of 15x FY22F EV/EBITDA, close to -1.5 std dev. 

More details after the briefing this morning.