July 3, 2022

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Influenza outbreak lights, new warnings and a decline in health stocks in the stock market: Is the negative pressure exaggerated?

If concern about the omicron variant of Covid-19 wasn’t enough, unexpected flu outbreaks in big cities in Brazil have been a new health concern, putting pressure on the public network and hospitals – as well as sector stocks.

The day before, hapveda verbs (HAPV3) decreased by 3.2% to 11.05 Brazilian riyals, after the lowest level in Thursday’s session (23).

Yesterday, the company highlighted ‘Significant’ increase in care of patients with ‘typical viral symptoms’ In recent weeks, which may affect the fourth quarter claim.

On December 20, Hapvida, within its own network, recorded 14,000 urgent and emergency calls related to respiratory diseases, compared to 7,000 calls recorded on March 15, the previous peak obtained during the second wave of covid-19. The company also said the trend could negatively impact medical costs in the fourth quarter.

Papers from other companies, such as Qualicorp (3 . quality) and NotreDame Intermedica (GNDI3), the last in the process of merging with Hapvida, also decreased (-2.5%), as did Rede D’Or (RDOR3), down 5.7%.

Rafael Barros, a health analyst at XP, noted that the impact of Micron and the flu should put pressure on the health care company’s costs. “The reading that the market may see is that this may delay the recovery of these companies” as costs rise, he told Reuters. The analyst noted that hospital stocks also fell as they were polluted by the stagnation in the industry as a whole.

Analysts at Itaú BBA, while noting that yesterday’s statement negatively affected Hapvida’s share (and other assets in the sector), see the market overreaction.

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“That’s because, right now, we haven’t seen that increase in consulting in the emergency room, which leads to an increase in admissions, which would be even more detrimental to the company’s loss ratio in the short term,” they assess. They noted that according to Hapvida, this outbreak has similar effects to the viral outbreaks that occurred in the northeastern region of the country in the pre-pandemic period, which led to more consultations and more testing, but with a lower rate of hospitalization. BBA is following an equivalent recommendation to buy Hapvida assets, with a target price of R$18 for 2022.

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The Bradesco BBI, in turn, highlighted some of the data provided by the National Health Agency (ANS) for November that it considers somewhat negative for health plan operators.

Analysts noted that diagnostic tests increased (12% compared to November 2019) after declining
October (down 1%), likely due to influenza outbreaks and increased ongoing voluntary actions related to the backlog created during the pandemic. Exams account for about 20% of the total costs.

Bed occupancy in vertical operators was stable in monthly variance at 73%, in line with pre-pandemic November 2019, with the number of beds also stable at 14.8 thousand. Hospitalizations represent about 45% of total medical costs.

However, emergency room consultations increased again, up 5% from the pre-pandemic level in February 2020 for the first time (6% increase in monthly variance in November plus 4% increase in monthly variance in October) due to the recent increase in Influenza A cases, these consultations account for only 4% of medical costs, but generally require other measures such as medication, which should roughly double that number, in the BBI assessment.

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“We see these numbers somewhat negative for health plan operators, due to the higher number of visits to emergency units and maintenance of diagnostic tests at higher levels. This, on the other hand, is slightly positive for hospitals and positive for diagnostic labs (which should mean strong and sustainable revenue growth, as we have seen in the third quarter of 2021), BBI analysts note.

They believe that these trends should intensify in the coming months due to the outbreak that began in Rio de Janeiro and is spreading to other states.

Despite the slightly negative news about fourth-quarter results from names such as Hapvida, NotreDame and SulAmérica (SULA11), BBI analysts maintained their preference for operators over providers, given the potential for better profits for 2022.

In Thursday’s session, HAPV3 shares fell by 4.16% to 10.59 Brazilian reais, GNDI3 shares fell by 3.24% to 61.45 Brazilian reais, while SULA11 assets decreased by 1, 74%, at 25.45 Brazilian reais. QUAL3 decreased by 2.16% to R$15.87, while RDOR3 decreased by 0.21% to R$42.66.

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