IHH Healthcare’s 1QFY2021 ended March results were in line with UOB Kay Hian’s estimates, with analyst Philip Wong viewing it as a ‘strong start to the year’.

Nonetheless, he believes the recent resurgence in pandemic cases will pose headwinds for IHH in the near term. “[With] the tightened Covid-19 measures in both its key markets, Singapore and Malaysia, we expect a soft 2Q2021,” he writes in a June 1 report.

Wong notes that IHH’s 1Q2021 core profit grew 77.3% y-o-y but contracted 9.6% q-o-q. The better y-o-y profit was driven by top-line growth for both its Singapore and Malaysia markets due to a low base the previous year, a recovery in domestic volume and contribution from Covid-19-related services.

Going forward, Wong anticipates the tightening of Covid-19 movement measures to curtail patient volumes in both markets.

For IHH’s other markets, Wong highlights that earnings drag from North Asia is diminishing, with management expecting Gleneagles Hong Kong to break even this year, provided that Hong Kong does not stay in protracted lockdown.

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For Acibadem, Wong notes that the Turkish healthcare group saw revenue grow 11% y-o-y in ringgit terms on the back of better case mix and price adjustments to counter inflation, while its non-lira debt exposure has also reduced. “The unhedged euro exposure will be further de-risked as IHH continues to expand its euro contribution,” he adds.

For its India operations, Wong sees a sustained recovery, with revenue growing 11% y-o-y and 4.5% q-o-q driven by Covid-19-related services and a recovery in non-Covid inpatient admissions. “Going forward, we expect occupancy rates to improve further with India’s Covid-19 cases skyrocketing. However, this would be slightly diminished by lower elective cases,” he says.

Notwithstanding the positive indicators from its other markets, Wong has kept his earnings estimates and target price of RM5.70 ($1.82) for IHH unchanged. 

However, he keeps his ‘buy’ rating for the counter, noting that valuations “appear attractive” given IHH’s defensive three-year earnings CAGR between FY2020 to FY2023 of 20.1%, the group’s sound track record, and the better trajectories anticipated from its secondary markets.

“The diminished risks and attractive valuations far exceed the uncertainty revolving around Fortis and IHH’s initial 31% stake that has been brought into question,” he says.

As at 4.47pm, shares in IHH are down 3 cents or 1.71% lower at $1.72.