Health Care: Modern Dental Group, KPJ Healthcare, Hapvida Participacoes E Inve and more

• The impact of dental implants centralized procurement on Modern Dental Group (3600 HK) (MDG) could be limited, and the strategic partnership with Meitu Inc (1357 HK) on “QJ Smile” also brings more possibilities.
• The concerns include doubts on R&D/innovation capability, complex international relations, foreign policy disturbances, unsettling macro environment and immature invisible orthodontic business, bringing uncertainties in terms of future development outlook.
• Although the 2021 full-year performance is worth looking forward to, which could be the short-term catalyst, MDG is more suitable for short term trading than long term holding.

• Below expectations
• 4Q21 dragged by higher fixed costs
• QoQ improvement in Malaysian operational metrics
• BOR recovery to drive FY22/23E earnings growth

4Q21 core earnings of RM15.2m were down 69% YoY on higher operating costs related to SOP compliances and gestation from new hospitals, despite higher revenues. This has led to full-year earnings missing ours and consensus’ forecasts at :til80% of FY21E estimates. We nonetheless expect BOR recovery to drive FY22-23E earnings growth due to economic reopening. We also introduce FY24E earnings. Maintain Hold with a slightly lower DCF-derived TP of RM1.10 (WACC: 7.98%, g: 2.0%). Valuation looks fair at 31.4x FY22E PE.

• The business combination of Hapvida Participacoes E Inve (HAPV3 BZ) and Notre Dame Intermed Par SA (GNDI3 BZ) concluded on Feb 11. GNDI3 shares are no longer trading.
• Since Feb 14, 2022, GNDI has become a wholly-owned subsidiary of Hapvida. The combined business has become Brazil’s largest vertical healthcare operator, with a market share of approximately 18%.
• The combined company estimates operational synergies of BRL1.38 billion during 2022–2024. With a share of 58%, revenue is expected to be the biggest contributor of the synergies.