Moving further into 2022, RHB Reseach is cognisant of the tapering in IHH Healthcare’s COVID-19 related revenue and upward cost
pressures. Nonetheless, we regard these as minor headwinds, as growth prospects beyond the shorter term remain firm, on the back of the recovery in foreign patient numbers post-pandemic and the expansion of its existing cluster. Its valuation remains attractive, at 13x FY22F EV/EBITDA (-1SD from the 5-year mean).
Hence, the research house maintains BUY rating on the healthcare provider counter. Target price has been upgraded from RM7.35 to MYR7.50, with a- 17% upside c.1% FY22F yield.
IHH expects cost pressures to kick in for FY22F from higher wages and inflation, notably in Turkey. That said, Acibadem has already made appropriate price adjustments (+33% since the start of FY22), and this is not expected to hamper demand – given the
inelastic nature of healthcare and the targeted group of patients belonging to the middle-to-upper segment of the income bracket. Similarly, price adjustments will be made for its other markets, as it had done so historically – as reflected in the trend of the group’s revenue intensities.
After a stellar year, IHH is back on the lookout for strategic assets that complement its existing clusters or penetration of adjacent markets. Meanwhile, several expansions are expected to come online – which include a new hospital in Istanbul (180 beds in 3Q22), Parkway Shanghai (soft opening in 3Q22), and a new ambulatory care centre in Singapore (FY23F). Nonetheless, its portfolio restructuring efforts are still ongoing, where underperforming assets will be monitored and reviewed for possible divestment.
COVID-19 related revenue will taper down by 1H22F, due to the global move towards endemicity and Singapore’s replacement of polymerase chain reaction (PCR) testing with Antigen Rapid Test Kit (RTK) for on-arrival testing. However, RHB Research does not expect margins to collapse – given the return of foreign patient arrivals, as well as the continued ramp-up in Fortis Healthcare and
Gleneagles Hong Kong. As such, in the shorter term, there will be sequential earnings weakness but looking beyond, its growth prospects remain firmly intact through the expansion of its existing clusters, foray into adjacent markets and the development of its diagnostic business.
Due to updated lower net debt and minority interest values. Its valuation remains undemanding, as IHH is trading at 13x FY22 EV/EBITDA (-1SD of its 5-year mean). The Research house ascribed an 0% ESG discount/premium to our intrinsic value as its ESG score is on par with the country median. The BUY call is maintained with higher target price of MYR7.50
