Integrated Diagnostics Holdings: 2020 – Robust financial performance driven by domestic expansion; Maintain OW
- Robust financial performance in conjunction with continued domestic expansion, despite a challenging year
- GPM records a 4-year high, crossing the 50% mark
- EBITDA margin inches up on lower SG&A/Sales
Robust financial performance in conjunction with continued domestic expansion, despite a challenging year
IDHC reported 2020 revenues of EGP2,656 million, representing a YoY growth of 19.3%. Attributable net profit came in at EGP594 million in 2020 (+16.3% YoY), translating to a NPM of 22.4% (-0.6pps YoY). IDHC has expanded its network to 481 branches in 2020 (across Egypt, Jordan, Sudan, and Nigeria), compared to 452 branches in 2019, despite the challenges, lockdowns and curfews imposed due to the Pandemic.
Bottom-line sustains double-digit growth, supporting healthy dividend payout
Bottom-line came in at EGP609 million (+20.8% YoY) in 2020, slightly lower than our estimate of EGP625 million, and attributable net profit recorded EGP594 million (+16.3% YoY). This translates to an attributable NPM of 22.4% (-0.6pps YoY). IDHC’s healthy profitability levels are expected to support the company’s dividend policy going forward, noting that the group has been a regular dividend payer historically, where the minimum dividend payout ratio over the past five years registered 61% (in 2016), with around 89% distributed out of 2019 profits. We estimate a payout of 87% in 2020, with DPS at EGP0.89 (implying a DY of 5.1%).
Egypt shores up top-line growth, with over 80% revenue contribution
Egypt revenues recorded EGP2,173 million in 2020 (+14.2% YoY), accounting for 81.8% of IDHC’s top-line. This came on the back of IDHC’s strong brand equity and nationwide presence in Egypt, where the company operates 429 lab branches in Egypt, out of its total network of 481 branches. Revenue growth was driven by IDH’s ramped-up house call service (which contributed 22% of Egypt’s 2020 revenues, compared to a contribution of 11% 2019), besides rising demand for Covid-related tests, noting that PCR testing contributed 11% to Egypt’s revenues in 2020.
IDHC’s operations in Jordan recorded revenues of EGP409 million in 2020 (+59.3% YoY), with the group operating 20 lab branches (up from 19 branches in 2019), contributing 15.4% to the group’s top-line in 2020. IDHC operated 20 branches in Sudan in 2020 (down from 21 branches in 2019), which contributed EGP38 million (+2.1% YoY) to the group’s top-line in 2020. Meanwhile, Nigeria contributed EGP36 million (+20.0% YoY) through a chain of 12 branches (down from 13 branches in 2019).
IDHC conducted 27.0 million tests (compared to 30.5 million tests in 2019) and served 7.1 million patients in 2020 (compared to 7.5 million patients in 2019), with an average test per patient of 3.8 in 2020, down from 4.1 tests per patient in 2019. Contract/Corporate patients stood at 4.8 million in 2020 (down from 5.1 million contract patients in 2019), representing 68% of IDHC’s client base, with an average revenue per patient of EGP297 (+22.2% YoY). On the other hand, walk-in patients stood at 2.3 million in 2020 (-1.9% YoY), representing 32% of IDHC’s client base, with an average revenue per patient of EGP534 (+27.7% YoY).
GPM records a 4-year high, crossing the 50% mark
GPM expanded to 50.5% in 2020 (+1.9pps YoY), translating to a gross profit of EGP1,343 million (+23.9% YoY). IDHC sustains healthy GPM levels through continuous cost-reduction initiatives, underpinned by the group’s large operational scale and strong, long-standing relationships with suppliers, which enable IDHC to realize favorable cost synergies.
EBITDA margin inches up on lower SG&A/Sales
EBITDA margin climbed by 1.7pps YoY in 2020, recording 44.1%, with an EBITDA of EGP1,171 million (+24.0% YoY). This has been driven by a decline in SG&A expenses, where SG&A/Sales dropped to 12.4% in 2020, down from 13.7% in 2019.
We expect IDHC’s strong financial performance to carry on in 2021, where we project top-line to grow by 17.2% YoY, to register EGP3.1 billion. In addition, we anticipate the group to maintain healthy profitability levels, with net profit growing to EGP741 million in 2021 (+21.5% YoY), which would translate to a NPM of 23.8% (+0.8pps YoY). IDHC seeks to further solidify its domestic presence through planned expansions, where the group targets to add 25-30 new pathology lab branches in Egypt per annum over the upcoming years. In addition, IDHC eyes to expand in the radiology segment through the establishment of another four branches of Al Borg Scan in Cairo, which should be completed by the end of 2022.
IDHC is currently trading at 2021f P/E of 14.0x and EV/EBITDA of 7.5x.
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