IHH’s impact from forex losses minimal


IHH Healthcare Bhd’s earnings for the financial year 2021 (FY21) is expected to be slightly impacted by the depreciation of the Turkish lira.

RHB Investment Bank Bhd (RHB Research) analyst Alan Lim said the fall of the Turkish lira will likely have a slightly negative effect on the private healthcare group due to its interest in Acibadem Saglik Yatirimlari Holding AS.

“For every 10% depreciation in average euro/lira, we expect a 1.6% decline in FY21 earnings. We view this as a small hiccup, as the bigger picture of a Covid-19 recovery remains intact — as inpatient visits should improve,” Lim said in a note yesterday.

The lira fell to an all-time low on Monday following President Recep Tayyip Erdogan’s decision to abruptly dismiss Turkish central bank governor Naci Agbal, two days after he hiked interest rates to offset a sharp rise in inflation.

Erdogan has since appointed Sahap Kavcioglu, a former banker and ruling party lawmaker, making him the fourth central bank head appointed since July 2019.

The research house maintained a ‘Buy’ call on IHH with a target price (TP) of RM6.15.

“Still ‘Buy’, as we expect 53% earnings growth in FY21, with a three-year forward earnings compound annual growth rate of 21%,” Lim said.

He noted that IHH’s management have proactively tried to reduce the impact of the lira’s depreciation last year by reducing its non-lira debt to €37 million (RM181.21 million) in FY20 compared to €267 million as at end-2019.

RHB Research said IHH’s fundamentals remain strong as it stands to benefit from the Covid-19 recovery. Its earnings declined 22% year-on-year (YoY) in FY20 on lower occupancy rates caused by infection fears, which led to patients delaying or cancelling hospital visits.

“Assuming that Covid-19 cases decline, due to mass vaccinations, we expect patients to have more confidence to visit hospitals again. We expect inpatient admission volume to rise 27% YoY in FY21, and 4% YoY in FY22,” Lim said.

The research firm further expects patient volume to recover for IHH’s hospitals in Malaysia, Greater China, Turkey and India.

“The trend of its Singapore unit’s fourth quarter of 2020 (4Q20) earnings — which outperformed even the pre-Covid-19 of 4Q19 — shows that management’s strategy to improve return on equity has started to bear fruit.

“This can be replicated in other markets that it operates in. Our TP implies 18.5 times FY21 earnings value (EV) to Ebitda or -0.5 standard deviation from the five- year mean.

“Its EV/Ebitda is also close to the regional peer average of 19 times,” Lim said.