Buy call for IHH despite earnings miss

-A +A

KUALA LUMPUR (June 30): IHH Healthcare Bhd’s latest core earnings missed market expectations, analysts said today, after the hospital operator reported yesterday a first-quarter net loss of RM319.79 million on lower revenue.

Analysts were, however, not deterred from issuing “buy” ratings for IHH shares as they think investors should buy the stock on weakness for longer-term recovery.

Yesterday, IHH said net loss stood at RM319.79 million for the first quarter ended March 31, 2020 (1QFY20) versus a net profit of RM89.51 million a year earlier. Revenue fell to RM3.56 billion from RM3.64 billion.

Today, CGS-CIMB Securities Sdn Bhd analyst Ngoh Yi Sin wrote in a note that IHH's reported 1QFY20 net loss of about RM320 million was a miss against the research firm's and consensus expectations.

Excluding exceptional items, IHH would have recorded an underlying 1QFY20 net profit of RM189 million, which is deemed below CGS-CIMB's expectation at 25% of full-year forecast as the research house now expects a weaker 2QFY20 for the hospital operator, she said.

"While IHH’s near-term share price could be weighed down by a lacklustre 2Q20F, we think investors should buy on weakness for longer-term recovery.

"We project 2Q20F to be significantly weaker on the back of travel restrictions implemented since late-March 2020 and deferment of non-essential treatments. We further trim our FY20F EPS by 9.8% on Covid-19 disruption and keep our FY21-22F EPS unchanged. Reiterate 'add' (call for IHH shares), with an unchanged SOP (sum-of-the-parts)-based TP (target price) of RM6.25," Ngoh said.

CGS-CIMB's "add" call indicates that a stock’s total return is expected to exceed 10% over the next 12 months.

Similarly, MIDF Amanah Investment Bank Bhd is recommending a “buy” call for IHH shares but but with a lower TP of RM6.34 versus RM6.45 previously.

In a note today, MIDF analyst Noor Athila Mohd Razali said the research firm acknowledges that IHH is facing near-term business headwinds, particularly in the form of weak demand arising from the Covid-19 outbreak.

"This is expected to slow down demand for medical tourism and (lead to) deferrals of non-urgent and non-essential procedures and services. Nonetheless, we are maintaining our 'buy' recommendation as we opine that the loss in patients visit will be compensated in 2HFY20 once Covid-19 measures have been eased further by governments across the world and patients coming in to perform the earlier deferred or postponed procedures," Noor Athila said.

IHH's 1QFY20 normalised earnings at RM189.4 million, after excluding exceptional items, were below MIDF's but within consensus forecast, according to her.

She said IHH's 1QFY20 normalised earnings accounted for 19.2% and 24.2% of MIDF's and consensus full-year earnings estimates for IHH respectively.

"We are revising our earnings forecasts for FY20F and FY21F downwards by -23.4% and -10.6% respectively as we take into account a lower number of patients admission following the travel restrictions and movement control order implemented in various countries to curb the spread of Covid-19 which were extended into 2QFY20," she said.

At Bursa Malaysia today, IHH shares were traded 21 sen or 3.75% lower at RM5.39 at 2:41pm for a market capitalisation of RM47.32 billion.

Over the last one year, IHH shares were transacted between RM4.55 and RM5.95.