Lower patient traffic for IHH due to Covid-19, say analysts
By Xavier Kong |   |  Mainstream

IHH Healthcare Bhd saw lower patient traffic and revenue for the first quarter of its financial year 2020 (1QFY20), as the Covid-19 pandemic led to patients postponing or deferring non-urgent procedures, according to analysts.

“While core performance remained intact, the 1QFY20 earnings were dragged by the outbreak of Covid-19 which has led to the deferment and postponement of medical procedures as well as lower patient visits to hospitals,” said MIDF Research analyst Noor Athila Mohd Razali.

Athila also noted that this was further exacerbated by the additional costs incurred to implement Covid-19 precautionary and safety measures at all IHH’s healthcare facilities.

The quarter saw a loss of RM366.7 mil reported by the healthcare player, impacted by impairment on goodwill worth RM400.5 mil and a realisation of RM60 mil in foreign currency translation losses.

AmInvestment Bank analyst Nafisah Azmi noted that foreign patient volume had also declined from March onwards, due to the travel restrictions in place across the countries that IHH operates in.

“The drop in sales was offset by Covid-19-related services that the group provides, like the Covid-19 screening and laboratory tests in Malaysia and Singapore. Moreover, the group also receives walk-in Covid-19 patients,” said Nafisah, adding that the worst impact of patient treatment postponements will be felt in April and May.

TA Securities analyst Tan Kong Jin shared that IHH management has reported a strong rebound in semi-elective and elective surgeries in June domestically, following the postponements and deferments during the movement control order (MCO) period.

Tan also noted that the group has taken significant cost-saving initiatives to mitigate the impact to earnings that will be felt in 2QFY20.

Affin Hwang Capital analyst Isaac Chow noted that the research house is cutting the estimated earnings of IHH for 2020 by 7%, incorporating the weak earnings of the first quarter and the expected hit to the second quarter.

However, Chow also noted that IHH remains a preferred pick for the research house among healthcare and pharmaceutical stocks, due to its growing presence in countries where healthcare demand is underserved.

Still, MIDF Research’s Athila believes that the group will see better times in 2HFY20, once Covid-19 measures have been eased further by governments across the world.

“Going forward, the group expects to further drive efficiency in its operation as well as realising additional resources through divestments of underperforming non-core assets. Through these initiatives, we believe that the group will be able to protect its profit margin and redeploy the additional cash to pare down debt,” said Athila.

Athila adds that the strong cash flow generative markets like Singapore and Malaysia will continue to support group performance in the near term.

MIDF Research and AmInvestment Bank both maintained buy calls on IHH, with the former lowering its target price to RM6.34 from a previous RM6.45, while the latter placed a higher fair value of RM6.58.

Affin Hwang Capital maintained its hold call, along with its target price of RM5.70. However, TA Securities downgraded the stock to a hold call while upping its target price to RM6 from a previous RM5.97, citing a 9% appreciation since the research house upgraded IHH to a buy call in early April.

At 11.38am, IHH’s shares were last done at RM5.45, down 15 sen, with 503,200 shares traded. – June 30, 2020

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