IHH earnings to be driven by demand recovery

“There have been strong returns of domestic patients as well as growth in foreign patients in Malaysia and Singapore. Specifically, the group in April 2022 saw a strong return in local and foreign patients,” said Kenanga research. File pic: .IHH Pantai Hospital KL)

PETALING JAYA: IHH Healthcare is projected to beat the rising inflation rate and see an upward curve in earnings for financial year 2022 (FY22).

Kenanga Research was optimistic about the group’s net profit this year following an engagement with the healthcare provider.

“We raise our estimated FY22 and estimated FY23 net profit forecasts by more than 10% and increase our target price by 8% to RM7.20.

“(We also) upgrade (stock recommendations) to outperform from market perform on stronger-than-expected demand recovery and earnings resilience in the face of sustained elevated inflation,” said the research house in a recent report.

Kenanga further noted that a stronger demand recovery can be expected for the group in the second quarter of financial year 2022 (2Q22) than what was assumed prior to this. This is primarily due to the mitigation of the pandemic in the locations where the group operates.

“There have been strong returns of domestic patients as well as growth in foreign patients in Malaysia and Singapore.

Specifically, the group in April 2022 saw a strong return in local and foreign patients,” said Kenanga.

In foreign countries like Turkey and Europe, the research house reported that the group had forecast there will be a continual climb in the bed occupancy rate. As for India, Kenanga noted that the group intends to elevate bed occupancy ratio which was averaging 60% on top of boosting cost savings and productivity levels.

The brokers said this is possible as the group is projected to have a progressive recovery of non-Covid patients beginning from 2Q22 as compared with 1Q22, which saw a drop in elective surgeries due to the pandemic.

Another main contributor to the group’s positive forecast by the research house is the low price elasticity of demand for private healthcare services.

Such low elasticity allowed the group to raise its revenue per inpatient rate as seen over several quarters previously.

“In tandem with the stronger-than-expected demand, we expect revenue per inpatient to surpass our earlier expectations. We now assume higher revenue per inpatient growth in Singapore, Malaysia, Turkey (Acibadem) at 18%, 11% and 20% for estimated FY22,” said Kenanga.

Separately, the group explained that Turkey, unlike the rest that makes cost adjustments based on inflationary pressures, does it based on customer price index readings.

Right now, it enjoys a a cost advantage as medical supplies inflation is less than price inflation.

However, Turkey is anticipated to likely be classified as a hyper-inflationary economy. This could lead to the group having to rebase its assets which could bring about a higher level of depreciation.

The research house maintains a “buy” call on the stock with RM 7.20 target price, a 15% increase from its previous target price.