Springing back to health!
- Stellar FY21 results, in line; Gleneagles HK posted positive EBITDA in 2H; rebound in non-COVID business
- Key positives: i) strong rebound in non-COVID business in Malaysia and India held up for 2 consecutive quarters, ii) higher dividend of 6 sen
- Key negatives: i) Malaysia and Singapore occupancy below pre-COVID, ii) COVID-19 services tapering off
- Maintain BUY; raise TP to RM7.90
Investment Thesis
Tapping into Asia’s strongest growth markets – China and India. With strong platforms in India and China, IHH now has exposure to Asia’s two largest economies with the highest growth potential in the healthcare sector.
Gleneagles HK has achieved EBITDA breakeven, en route for its next leg of growth. Gleneagles HK, which opened in Mar 2017, finally achieved EBITDA breakeven in May 2021 and should start to contribute positively to IHH’s next leg of growth.
Attractive valuation at -2 standard deviation. IHH is currently trading at a very attractive FY22F EV/EBITDA of 14x, close to -2 standard deviation (SD) of its historical range and is positioned to ride on the strong pent-up demand from foreign patients when borders reopen.
Valuation:
We maintain our BUY rating and raise our TP to RM7.90 / S$2.55 from RM7.20 / S$2.32, based on sum-of-parts (SOP) valuation methodology. We applied EV/EBITDA multiples ranging from 10-20x based on its various geographical markets.
Where we differ:
Expansion into Asia’s strongest growth markets – China and India are both risky but could be rewarding. IHH’s medium-term outlook is bright as it rides out near-term headwinds and gestation period for the new hospitals. With potentially strong platforms in India and China, IHH now has exposure to Asia’s two largest economies with the strongest growth potential in the healthcare sector. We believe this further elevates IHH’s long-term prospects.
Key Risks to Our View:
i) New waves of COVID-19 infections causing another lockdown, ii) economic slowdown, ii) weaker-than-expected performance, especially in new markets, iii) government policy changes.