Confident despite oncoming headwinds
? During its 1Q22 results briefing, IHH’s management was optimistic of future
growth prospects, while keeping a finger on the pulse of its challenges.
? We lower FY22F/23F/24F EBITDA by 2.8%/1.9%/1.0% due to margin
pressures and start-up costs for expected greenfield hospital in Turkey.
? Reiterate Add, with a lower SOP TP of RM8.12.
Covid-19 services reduced slightly; tapering to accelerate
Additional information revealed in the presentation slides from the analyst briefing revealed
Covid-19 contributions tapered at a more gradual pace than expected in 1Q22, due to the
appearance of the Omicron variant across the world. In Singapore, Covid-19 services
made up 22% of 1Q22 revenue (down from 29% a quarter ago), as testing requirements
relaxed. Covid-19 services remained stable qoq at 8%/5% of Malaysia/Turkey and
Europe’s revenue, but inched up from 6% to 9% qoq for India, which saw a more significant
impact from Omicron. IHH Healthcare expects contributions to taper at a faster rate moving
forward, which is in line with our expectations, with 13%/5%/4%/8% contributions from
Covid-19 services across Singapore/Malaysia/Turkey and Europe/India throughout
FY22F, lower than IHH’s reported contribution in 1Q22.
Insights suggest foreign patients could return more swiftly
In 1Q22, Turkey and Europe saw healthy occupancies of c.80% as foreign patients
returned, but foreign patient contributions remained lagging in Singapore, Malaysia and
India. Nevertheless, management shared that foreign patients contributed 6-8% in revenue
in 1Q22 (vs. c.25% pre-Covid-19), and numbers have continued to improve in Apr and
May. This suggests that medical tourism is likely to return at a faster pace than expected,
which we believe will be supportive of revenue momentum for the rest of the year.
Guiding for softer margins
Management shared that softer margins are to be expected amid the inflationary
environment, especially given the rising prices of utilities, which could potentially increase
cost of utilities by RM80m-120m in FY22F. We have thus adjusted our EBITDA margins
downward to reflect cost pressures, although IHH has shared that some costs could be
passed on, in tandem with the headline inflation rate.
Reiterate Add; trim SOP-based TP, but pockets of growth available
The EBITDA cuts see our SOP-based TP trimmed marginally to RM8.12 on lower
EV/EBITDA of its hospitals (Fig 2). EPS was revised upwards by 1.7%-5.7% for FY22-24F
due to lowering of minority interests from Fortis, which was in excess previously, but does
not have impact on our valuation. Growth opportunities on the table include a new
greenfield hospital in Turkey slated to open by FY22F, the Ramsay-Sime Darby acquisition
and potential acquisitions in India, which would all enhance IHH’s cluster strategy that
could enhance its earnings profile moving forward.