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Pihlajalinna - CMD notes

Pihlajalinna hosted the 2019 CMD last Friday. The focus of the event was on increased health and social care costs, cooperation of private and public sectors as well as the digitalization of health care. Pihlajalinna did not make any changes to its ‘19E guidance nor its long-term financial targets. We maintain our rating “Buy” with TP of EUR 13.

Need of new solutions for arranging services

The finances of Finnish municipalities have continued to deteriorate and municipalities are forced to find new solutions to balance their increased health and social care costs. Cooperation with private sector is no longer purely voluntary. As Pihlajalinna stated in Q1, municipalities’ activity has increased after the failure of the SOTE reform, despite of the restriction law.

New opportunities on occupational healthcare

Pihlajalinna has been able to use its network to expand services across the country. The company sees opportunities in expanding its occupational healthcare network as municipalities and other public sector entities are interested in divesting the occupational healthcare providers they currently own. The company targets to expand in basic-level specialized care and non-urgent specialized care as the public sector has made cuts in operations and centralized specialized care in fewer units.

Focusing on profitability improvements in 2019E

Pihlajalinna’s plan is to improve its profitability by organic growth, increasing cross-selling, and by addressing profitability issues in the new medical service centers. Pihlajalinna will also improve its customer service experience by bringing new digital solutions to the market, which will also be a significant profitability driver in the future.

Guidance for 2019E intact

Pihlajalinna reiterated its guidance for 2019E; to increase its revenue and EBIT in 2019E from 2018 levels. The company did not make changes to its long-term targets and expects EBIT % of 7% in long-term. We keep our estimates intact. We maintain our rating “Buy” with TP of EUR 13.

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