Strong 1H results and favorable outlook…
After finishing a year of volatility with resilient financial performance and executing successfully on deleveraging & elimination of currency risk plans, MLP Care is set to reap the positive impact of ‘normalization’ this year. In 2Q21, the Company’s revenue growth has reached 75% (1H21: 46%), thanks to positive impact of increased patient traffic, better revenue mix and pricing environment. These top-line dynamics point to a marked improvement above the favorable base effect of the 15% contraction in 2Q20. EBITDA margin has stayed at 24% (EBITDA: TL320m, +63% y/y) despite some additional costs related to employee acquisitions and Liv Hospital Vadistanbul launch expenses. Leverage and a substantial short FX position has been a source of worry for MLP Care. At the end of 2018, trailing net debt-to-EBITDA multiple was as high as 2.5x with a short position of EUR72mn. Strong operating cash flow generation and lower capex has lowered this ratio to 1.7x in 1H21. The Company’s closure of FX debt in February has also helped lower financial expenses, leading to TL95m net income (TL82m after minorities) versus TL22m losses in 2Q20.
…Prompt revision to our 2021/22 estimates
During the early stages of pandemic in 2020, Turkish public health system was overwhelmed by the wave of Covid-19 cases. As a result, some non-Covid patients opted to visit private hospitals, where they can use their Social Security Institution (SSI) coverage or top-up insurance policy (fastest growing segment in Turkey health insurance). Furthermore, the increase in SSI rates paid to private hospitals helped the topline of MLP Care to remain relatively resilient during 2020 and this year –with tariff adjustments passed in June. Partial lifting of international travel restrictions has unlocked demand for Turkey’s high quality, competitively priced healthcare offering, resulting in 308% growth in MLP Care medical tourism revenues (2Q20: 67% contraction). We expect these recent drivers of strong organic revenue growth to continue in 2H21 and 2022. As such, we forecast TL5.1bn revenues (previously TL4.7bn) and TL1.2bn EBITDA (previously TL1.0bn) in 2021. While elevated TL interest rates delay faster deleveraging, MLP Care should be able to attain its goal of reducing net debt-to-EBITDA ratio to 1.5x by year-end and report TL199m net income in 2021 (previous estimate: TL163m). Our 2022E EBITDA and net income are 9% and 5% above Bloomberg consensus, respectively.
Deleveraging and less capital-intensive growth bear fruit
MLP Care Management has hit all the right notes by concentrating on deleveraging, eliminating exposure to FX volatility and shifting to a less capital-intensive growth strategy since 2018; we estimate maintenance capex at 2-3% sales post 2021. We regard the current size of 30-hospital and 6,000-bed strong network size as optimal for near-term and expect no major investments until after the elections in 2022/23. This means sharp net income growth for MLP Care in the three-year period.
DCF based target raised to TL34.30 from TL30.75. Our valuation is based on DCF (16% r-f-r, 19% WACC, page 3). 2021/22E EV/EBITDA are at deep discounts vs. global peer averages of 10.4x and 8.7x
Source: Y. F. Securities Research