Pandemic lockdowns to impact IHH’s inpatient occupancy, earnings

The spiking Covid-19 cases in IHH’s 4 key markets have led to tighter lockdown rules and lower occupancy rates


IHH Healthcare Bhd’s patient occupancy rate and earnings could only recover meaningfully in the financial year 2022 (FY22) due to lockdown measures implemented in its key markets following growing Covid-19 cases.

Hong Leong Investment Bank Bhd (HLIB) analyst Gan Huan Wen said the spiking of Covid-19 cases in IHH’s four key markets — Singapore, Malaysia, India and Turkey — have led to tighter lockdown rules and lower occupancy rates.

“We examine IHH’s key markets namely Singapore, Malaysia, India and Turkey, and note that new daily Covid-19 cases in all the countries except Singapore, have been surging rapidly resulting in governments implementing some form of lockdown measures within the last two weeks.

“With lockdowns being implemented, we expect the movement of people to be limited and, hence, result in lower inpatient occupancy rates, particularly in the second quarter of 2021 (2Q21),” he stated in a research note yesterday.

Gan noted that inpatient occupancy rates in all four territories bottomed in 2Q20 at the height of lockdown restrictions.

A sluggish vaccination rate means herd immunity will not likely be reached in 2021 in most key markets except Singapore. While some countries intend to accelerate the pace of vaccinations, it would be a tall order given current inoculation rates.

For example, Malaysia, he wrote, would need to increase its vaccination rate by three times to 125,000 per day to reach the herd immunity target by end-2021.

“With key markets like Malaysia, India and Turkey unlikely to reach herd immunity in FY21, we expect them to continue to undergo a series of rotations between tightening and loosening of lockdown rules until herd immunity can be reached.

“As such, with the movement of people expected to be limited by various lockdowns, we expect inpatient occupancy rates in IHH’s hospitals to continue to be sluggish, at least until end-FY21,” he said.

HLIB also does not rule out the possibility of Japan’s Mitsui & Co Ltd, the substantial shareholder of IHH, attempting to take IHH private.

A recent Bloomberg article stated that Mitsui and some private equity firms could be exploring a deal to take IHH private by approaching Khazanah Nasional Bhd to buy over the latter’s stake in the hospital operator.

Mitsui now holds 32.9% of IHH shares, while Khazanah’s shareholding stands at 26%.

Khazanah MD Datuk Shahril Ridza Ridzuan has dismissed talk of the country’s sovereign wealth fund selling its stake in a recent media report.

Regardless, HLIB noted that Mitsui’s current stakeholding is just 0.1% shy of the 33% threshold which would compel Mitsui to make a mandatory offer according to the Securities Commission Malaysia guidelines.

As such, HLIB believes Mitsui could decide to purchase the additional shares in the open market to trigger a mandatory offer.

HLIB has lowered its earnings forecast on IHH’s FY21 by 6%, but increased its FY22 forecast by 24.5% to account for a recovery in IHH’s inpatient occupancy rate and pent-up demand as patients undergo delayed treatments.

HLIB maintained its ‘Hold’ call on IHH with a higher target price of RM5.62 from RM5.42.

IHH shares ended 0.6% or three sen higher at RM5.35 yesterday, valuing the company at RM46.9 billion.