Exceptional top-line growth driven equally by Covid and conventional test offering
IDHC reported strong 9M21 results. Revenues jumped by 126% YoY, recording EGP3,767 million. On a quarterly basis, 3Q21 revenues came in at EGP1,473 million, a rise of 26.6% QoQ and a surge of 105% YoY. Strong top-line growth came on the back of Covid-related tests as well as IDHC’s conventional test offering. Covid-related tests contributed c.51% to IDHC’s top-line in 9M21, significantly up from a contribution of 14% in 9M20. Excluding Covid-related tests, revenues generated from conventional tests witnessed a 30% YoY growth. IDHC’s branch network expanded to 507 branches (across Egypt, Jordan, Sudan, and Nigeria) in 3Q21, up from 495 branches in 2Q21 and up from 481 branches in 3Q20.
Egypt’s revenues recorded EGP3,122 million in 9M21 (+122% YoY), accounting for 82.9% of top-line. IDHC operated a network of 455 branches in 3Q21, up from 443 branches 2Q21, and up from 429 branches in 3Q20. Domestic revenue growth was underpinned by strong demand for Covid tests as well as conventional blood tests, where Covid tests contributed 49% to Egypt’s revenues in 9M21. Excluding Covid-related tests, Egypt’s revenues grew by 30% YoY in 9M21, driven by 21% YoY increase in conventional tests performed during the period. On a quarterly basis, Egypt recorded revenues of EGP1,187 million in 3Q21 (+97% YoY, +17% QoQ), mainly driven by growing demand for PCR tests of international travelers as countries ease border restrictions.
IDHC operated a network of 21 lab branches in Jordan in 3Q21, on par with 2Q21 but up from 19 branches in 3Q20. Jordanian operations recorded revenues of EGP592 million in 9M21 (+172% YoY), accounting for 15.7% of the group’s consolidated top-line. Annual surge was mainly driven by Covid tests, which accounted for 62% of Jordan’s 9M21 revenues and 31% of total tests performed by Biolab. Excluding Covid tests, revenues grew by 35% YoY, underpinned by a 32% YoY increase in conventional tests performed in 9M21. On a quarterly basis, Jordan’s revenue registered EGP269 million, up 167% YoY and up 101% QoQ. PCR testing volumes generated by Biolab’s testing stations in Queen Alia International Airport, King Hussein International Airport, and Aqaba Port more than offset the general falling demand for Covid tests as infection rates declined following the continued ramp up of the Jordan’s vaccination campaign.
In Sudan, IDHC operated 19 branches in 3Q21, on par with 2Q21 but down from 21 branches in 3Q20. Sudan revenues recorded EGP12 million in 9M21 (-41% YoY). IDHC attributed the YoY decline to the devaluation of the Sudanese pound in early 2021, noting that the SDG/EGP FX rate stood at 0.07 in 9M21 compared to 0.30 in 9M20. In local currency terms, Sudan’s revenues expanded by 169% YoY in 9M21 owing to management’s success in raising prices in line with inflation.
In Nigeria, revenues registered EGP40 million in 9M21, rising by 62% YoY. In local currency terms, revenues were up by 65% YoY, attributed to 43% YoY increase in tests performed, 13% YoY increase in the average revenue per test, and 24% YoY growth in patients served. IDHC operated a chain of 12 branches in Nigeria in 3Q21, on par with 2Q21 and 3Q20.
IDHC conducted 24.96 million tests in 9M21 (+33% YoY), driven by both Covid and conventional tests, where volumes of conventional tests rose by 20% YoY. Patients served recorded 7.48 million in 9M21 (+56% YoY), with the average test per patient dropping from 3.9 tests in 9M20 to 3.3 tests per patient in 9M21, due to the relative increase in the number of patients who conduct single Covid tests. Contract/Corporate patients grew from 3.261 million patients in 9M20 to 4.992 million patients in 9M21, accounting for 67% of the group’s client base (versus 68% in 9M20), where the average revenue per patient recorded EGP430 (+52% YoY). On the other hand, walk-in patients grew to 2.488 million in 9M21, up from 1.531 million patients in 9M20. The walk-in segment represented 33% of IDHC’s client base in 9M21, with an average revenue per patient of EGP651 (+33% YoY).
Profitability and margins continue to expand on the back of top-line growth and economies of scale
GPM expanded by 7.8pps YoY in 9M21 to record 57.5%, with a gross profit of EGP2,167 million (+161% YoY). This came on the back of IDHC’s strong top-line growth, which enabled the group to capitalize on economies of scale and dilute fixed costs. Wages and salaries, depreciation and amortization, and other expenses fell from 33.9% of revenues in 9M20 to 24.1% in 9M21. On a quarterly basis, 3Q21 gross profit came in at EGP861 million (+29.1% YoY, +124% QoQ), with a GPM of 58.5% (+1.1pps YoY, +5.2pps QoQ).
EBITDA margin jumped by 9.8pps YoY to register 52.1% in 9M21, reflecting an EBITDA of EGP1,963 million (+178% YoY). This was underpinned by the improvement in gross profitability, alongside the group capitalizing on economies of scale, where SG&A/Sales fell from 13.6% in 9M20 to 9.7% in 9M21. In addition, the normalization of booked provisions has also alleviated some pressure off EBITDA, with provisions falling to EGP18 million in 9M21, down from EGP36 million in 9M20. Excluding the one-off fees of EGP29.0 million incurred in 1H21 related to the Company’s dual listing on EGX in May 2021, normalized EBITDA came in at EGP1,992 million (+180% YoY), with a normalized EBITDA margin of 53% (+10.4pps YoY).
On a quarterly basis, 3Q21 EBITDA came in at EGP790 million (+34.6% QoQ, +133% YoY), with an EBITDA margin of 53.6% (+3.2pps QoQ, +6.5pps YoY).
Strong financial performance trickled down to bottom-line, where attributable net profit surged by 195% YoY to register EGP1,101 million in 9M21. In turn, attributable NPM expanded by 6.9pps YoY to register 29.2% in 9M21. On a quarterly basis, attributable net profit came in at EGP454 million in 3Q21 (+134% YoY, +41.8% QoQ), implying an attributable NPM of 30.8% (+3.8pps YoY, +3.3pps QoQ).
On track to deliver remarkable FY2021 results; Maintain Overweight
IDHC is on track to deliver a remarkable set of results in FY2021, with management guiding for a top-line of around EGP4.9 billion and a normalized EBITDA margin in the range of 50%. The group seeks to further solidify its domestic presence through planned expansions, targeting to add around 30 new pathology lab branches per annum over the upcoming years. In addition, IDHC eyes to expand in the radiology segment through the establishment of another three branches of Al Borg Scan in Cairo, which should be completed by the end of 2022. IDHC secured from an 8-year, USD45 million loan in May 2020, which would be used to finance the company’s planned existing market expansions as well as expand across new markets. Management has earlier highlighted that the group is seeking value-accretive acquisition opportunities in African, Middle Eastern, and South Asian markets to capitalize on favorable healthcare and consumer trends, noting that the company will announce those plans when possible.
In 2022f, we project top-line to decline by 28.9% YoY and register EGP3,493 million. This would be mainly attributed to: a) strong base, given that 2021 is an exceptional year for IDHC, and b) an anticipated drop in Covid-19 testing volumes given the rollout of the vaccination program, which will see Covid revenues to contribute 26.7% to IDHC’s top-line, down from an expected contribution of 53.5% in 2021e. Moreover, we expect margins to gradually normalize, with GPM falling by 3pps from 57.0% in 2021e to 54.0% in 2022f. In turn, attributable NPM is expected to record 26.7% in 2022f, down from our 2021e estimate of 28.4%, with attributable net profit dropping by 33.1% YoY to EGP932 million.
IDHC is currently trading at 2021e P/E of 7.8x and EV/EBITDA of 4.1x, while trading at 2022f P/E of 11.7x and EV/EBITDA of 5.9x.