IHH Healthcare - CGS-CIMB Research 2022-08-29: Operational Resilience With Room For Growth

IHH Healthcare - Operational Resilience With Room For Growth

  • IHH Healthcare (SGX:Q0F)’s analyst briefing slides revealed that COVID-19 services only made up 3% of 2Q22 revenues, compared with 11% in 1Q22 and 16% in 2Q21. Despite the drastic decline, IHH Healthcare’s revenue managed to grow 2.4% y-o-y to RM4.37bn 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.
  • In 2Q22, IHH Healthcare’s EBITDA margin declined by 3.6% points y-o-y and 1.6% points q-o-q amid inflationary pressures resulting in higher staff costs and utilities expenses as well as lower contribution from COVID-19 services that were more margin accretive. The designation of Turkey as a hyperinflationary country by audit firms, leading to the application of Malaysian Financial Reporting Standard (MFRS) 129, also led to Acibadem experiencing an EBITDA margin compression. However, we believe that margins could normalise moving forward with better operating leverage as non-COVID-19 businesses recover. Management also said that price adjustments are typically done in tandem with cost increases, such as wage increments, as a means to offset margin compression pressures.
  • We continue to like IHH Healthcare for its two-pronged approach to support growth:
    1. optimisation of existing assets to improve profitability in the near term; and
    2. contribution from newly acquired assets over the longer term.
  • Apart from the Ramsay-Sime Darby deal for which due diligence has been completed, IHH Healthcare will also add 52 beds opposite its existing Acibadem Adana Hospital with newly acquired Ortopedia Hospital. IHH Healthcare 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.
  • Reiterate ADD recommendation on IHH Healthcare with a lower SOP-based target price of RM8.07, adjusted for market value of subsidiaries Fortis Healthcare (NR) and Parkway Life REIT (SGX:C2PU).

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.

TAY Wee Kuang CGS-CIMB Research | https://www.cgs-cimb.com 2022-08-29
SGX Stock Analyst Report ADD MAINTAIN ADD 2.51 DOWN 2.530

Read also CGS-CIMB's most recent report:
2022-09-09 IHH Healthcare - No Deal For Ramsay-Sime Darby

Relevant links:
IHH Healthcare Analyst Report,
IHH Healthcare Target Price,

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IHH Healthcare Announcements,
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