Earnings Report /

Integrated Diagnostics Holdings: A Record Year for IDH, Expect a Weaker 2022

  • Revenues surged on covid-related revenues and a healthy conventional business growth

  • Solid top-line growth and economies of scale fuel profitability and margin expansion

  • Management 2022 outlook and Al Ahly Pharos Earnings Expectations

Al Ahly Pharos Securities Brokerage
22 April 2022

Revenues surged on covid-related revenues and a healthy conventional business growth

IDHC reported revenues of EGP5.22 billion in 2021, a surge of 97% YoY. The surge in revenues came on the back of Covid-related tests as well as IDHC’s conventional test offering. During 2021, the number of total tests performed increased by 24% YoY along with a surge in average price per test by 53% YoY. Covid-related tests contributed c.51% to IDHC’s top-line in 2021, significantly up from a contribution of 24% in 2020, given the high demand for covid tests that was fueled by rising infection rates. Revenues generated from conventional tests witnessed a healthy 22% YoY growth (+13% above 2019 levels).

IDHC conducted 33.7 million tests in 2021 (+24.3% YoY), driven by both Covid and conventional tests, where volumes of conventional tests rose by 15% YoY. The number of patients served stood at 10.3 million patients in 2021 (+45.0% YoY), with the average test per patient dropping from 3.8 tests in 2020 to 3.3 tests per patient in 2021, due to the relative increase in the number of patients who conduct single Covid tests.

On a quarterly basis, 4Q21 revenues came in at EGP1.46 billion (+47.9% YoY, -1.0% QoQ). IDHC’s branch network expanded to 502 branches (across Egypt, Jordan, Sudan, and Nigeria) as of December 2021, up from 507 branches in 3Q21 and up from 481 branches in 4Q20.

Solid top-line growth and economies of scale fuel profitability and margin expansion

During 2021, gross profit recorded EGP2.80 billion (+109% YoY), implying a margin of 53.7%, expanding by 3.1pps in 2021. 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. Raw materials, wages & salaries, depreciation & amortization, and other expenses dropped from 49.5% of revenues in 2020 to 44.4% in 2021. On a quarterly basis, gross profit came in at EGP637 million (+24% YoY, -26% QoQ) in 4Q21, implying a GPM of 43.7% (-8.3pps YoY, -14.7pps QoQ) in 4Q21.

EBITDA stood at EGP2.48 bn (+112% YoY) in 2021, implying a margin of 47.5%, expanding by 3.4pps YoY in 2021. EBITDA performance mirrored gross profit performance, along with capitalizing on economies of scale, where SG&A/Sales dropped to 10.2% in 2021, compared to 12.4% in 2020. On a quarterly basis, EBITDA came in at EGP518 million (+11.6 YoY, -34.4% QoQ), with an EBITDA margin of 35.5% (-11.5pps QoQ, -18.1pps YoY) in 4Q21.

Strong financial performance trickled down to bottom-line, where attributable net profit surged by 151% YoY to stand at EGP1.49 billion in 2021, implying an attributable NPM of 28.6%, expanding by 6.2pps YoY 2021. On a quarterly basis, attributable net profit came in at EGP345 million in 4Q21 (+47.2% YoY, -24.1% QoQ), implying an attributable NPM of 23.6% (-0.1pps YoY, -7.2pps QoQ).

Management 2022 outlook

  • IDHC is committed to grow at the same pace along with opening 30-35 branches per year and expanding further in the radiology business through adding at least 3 radiology labs this year (this brings the total number of radiology labs to 7 labs). The company is guiding for the usual capex spending that should represent around 6% of sales.

  • The consolidation of IDC (Pakistan) will act as a key revenue driver for IDHC in 2022, contributing 15% of overall performance, acting as a hedge against the expected normalization of revenues in case covid-related revenues started to slow down.

  • Another key trigger for revenues in 2022 is the growth in both conventional and covid testing. Demand for covid-related testing is taking different forms throughout the year, either driven by demand for testing as infection rates spike or travel-related testing.

  • IDHC expects to sustain the walk-in (40%) compared to corporate (60%) revenue contribution.

  • IDHC will continue to increase prices annually for walk-in patients by around 10% and 5-7% for corporate patients, bringing a blended increase in pricing to around 7.5%.

  • Management expects normal opex levels with no expected spikes in costs taking place so far.

  • During 2021, IDHC managed to secure partnerships with international air carriers, regional healthcare providers such as NAS and Pure Health, in addition to revenue sharing agreements with Queen Alia International airport in Jordan, King Hussien international airport and Aqba port.

IDH board proposed distributing EGP2.17/share (total dividends of EGP1.3 bn, a payout ratio of c.87%, DY of 11.3%).

Al Ahly Pharos 2022 Earnings Expectations [Pre-IDC]

In 2022f, we expect a decline of 33.2% YoY in revenues to record EGP3.49 billion. This would be mainly attributed to a strong base effect, given that 2021 is an exceptional year for IDHC, and an anticipated drop in Covid-19 related testing volumes post the rollout of the vaccination program. Attributable NPM is expected to record 26.7% (-1.9pps YoY) in 2022f, with attributable net profit declining by 37.5% YoY to EGP932 million. Additionally, we expect EBITDA to stand at 1.72 billion in 2022f (-30.8% YoY), implying an EBITDA margin of 49.2% in 2022f. Consolidation of IDC should add 15-25% to our IDHC’s pre-deal estimates.

IDHC is currently trading at 2022f P/E of 12.3x and EV/EBITDA of 6.3x.