Healthcare January 24, 2023

Healthcare

The Night Is Darkest Before The Dawn

Updating estimates for RDOR, ONCO, MATD and KRSA

We are updating estimates for Rede D’Or, Oncoclínicas, Mater Dei, and Kora Saúde and introducing YE23 target prices for the stocks. We are getting increasingly Rafael Barros, CFA
skeptical regarding hospitals’ performance throughout 2023. Our view is backed by: (i) the persistently high MLR levels being borne by payors; (ii) the slowly decreasing Healthcare & Education
growth rate of the health plan market; and (iii) the recent increase in cost of capital paired with high leverage ratios. All in all, we have a conservative view regarding [email protected]
healthcare providers, yet we do see upside potential in some stocks – such as ONCO and MATD.
Raphael Elage
Health plan operators are under pressure. Payors are dealing with all-time-high MLR levels, and we do not see a recovery happening in the short-term, since it will most Healthcare & Education

likely require price increases, mix adjustments, and portfolio churn. To deal with the current situation, health plan operators are increasing the disallowance (“glosas”) [email protected]
rate, extending the payment terms, and adjusting prices below inflation. The measures impact providers’ top-line, margins, and cash conversion cycle.

Macro uncertainty may put a hurdle to market growth. Since 2020 the health plan market has been growing consistently. However, we expect this trend to lose
momentum due to macro uncertainty as unemployment and average household income might be impacted and limit market growth potential.

Indebtedness and interest rates to halt consolidation. Healthcare providers’ leverage ratio increased significantly – to over 5x net debt to EBITDA in a few cases – after
an aggressive consolidation process underwent by the entire sector. Additionally, the 5-year-forward CDI rate increased 6.4 p.p. since 2020 (to 12.3%), hurting the
companies’ bottom-line and marginal cost of capital. We do not see acquisitions playing a relevant role for the hospital segment in the near-term.

Net Earnings (R$mn) P/E EV/EBITDA

Company Ticker Current Price Target Price Potential Rating Mkt. Cap (RSmn)
2023E 2024E 2023E 2024E 2023E 2024E
Rede D'Or RDOR3 28.3 28.8 1.9% Neutral 2,377 3,640 27.1x 17.7x 12.6x 9.8x 64,467
Oncoclínicas ONCO3 7.1 9.3 31.2% Buy 99 275 37.0x 13.3x 7.1x 5.6x 3,660
Mater Dei MATD3 7.4 9.9 34.7% Buy 287 404 9.8x 7.0x 6.6x 5.1x 2,810
Kora Saúde KRSA3 1.0 1.3 30.0% Neutral 44 61 17.4x 12.6x 6.3x 5.5x 767

Source: XP Research EQUITY RESEARCH 1

 Healthcare

03. Main Themes

07. Rede D’Or

15. Oncoclínicas

Summary 21. Mater Dei

27. Kora Saúde

33. Main Risks

EQUITY RESEARCH 2
 Healthcare

Main Themes
EQUITY RESEARCH 3
Industry Pressure January 24, 2023
Healthcare

Payors’ high MLR is affecting the entire healthcare sector

Profitability deterioration across the board. The healthcare operators are still trying to get back on their feet after the Covid-19 pandemic – especially the second wave – destabilized the entire sector. The
largest players are still bearing concerning MLR levels, and we expect a gradual and slow recovery process, which is likely to take longer than a year, considering that it will require price increases, mix
adjustments, and portfolio churn.

Providers are also taking the toll. In order to circumvent the current pressure, payors are looking for ways to lower costs and to improve the cash cycle. Providers are bearing a higher disallowance (“glosas”)
rate and longer receivables’ cycle. Also, according to our channel checks, hospitals are not being able to pass cost inflation through to payors. In summary, the actions being taken by payors should affect
hospitals’ top-line, margins, and cash generation (consequently hurting financial result).

Figure 01: Market Average LTM MLR¹ Figure 02: Selected Operators’ Figures
Beneficiaries ('000) Net Revenues (R$M) MLR Net Income (R$M)
100% Company
3Q22 LTM -2Y LTM -1Y LTM LTM -2Y LTM -1Y LTM LTM -2Y LTM -1Y LTM
HAPV 9,248 16,764 19,711 23,744 68% 79% 80% 1,743 361 225
Bradesco 3,933 25,995 27,988 28,380 85% 97% 95% 1,241 991 1,030
Amil 3,112 20,867 20,680 18,029 79% 90% 98% 1,058 (956) (2,227)
SULA 2,772 20,874 22,444 22,087 79% 85% 90% 1,339 137 460
90% Athena 744 1,437 1,330 1,977 63% 76% 78% 147 (3) (19)
Prevent Senior 538 3,941 4,785 4,715 69% 86% 103% 528 95 (689)
Assim 451 1,748 1,881 1,765 78% 82% 84% 113 34 (14)
PSSA 414 1,799 1,964 2,864 69% 80% 81% 145 9 138
Golden Cross 219 1,095 1,068 1,189 76% 76% 80% 10 (7) 11
80% Care Plus 112 1,131 1,272 1,595 61% 71% 75% 125 75 108
Omint 77 1,682 1,755 1,885 70% 80% 87% 195 76 38
CNU 1,913 5,104 5,782 6,412 73% 84% 91% 430 174 (193)
Unimed BH 1,489 4,410 4,777 5,309 72% 74% 78% 440 422 266
Unimed Porto Alegre 645 3,003 3,288 3,156 79% 88% 89% 218 13 23
70% Unimed Seguros 671 1,510 2,328 3,450 49% 74% 85% 224 144 162
Unimed Curitiba 573 2,766 2,960 2,689 79% 89% 95% 240 (74) (123)
Unimed Campinas 535 2,446 2,673 2,565 76% 85% 90% 298 (26) (88)
Unimed Vitória 386 1,389 1,460 1,566 78% 92% 95% 88 (51) (73)
Unimed Goiânia 359 1,641 1,949 1,760 82% 87% 96% 151 135 (151)
60% Unimed SP 352 576 642 1,108 45% 53% 79% 88 46 44
4Q16 4Q17 4Q18 4Q19 4Q20 4Q21 Unimed Fortaleza 336 2,205 2,486 2,348 78% 87% 87% 151 (29) 15

Source: XP Research, ANS | Note: (1) only healthcare operators with 40k+ plans were considered EQUITY RESEARCH 4
Growth Slowdown January 24, 2023
Healthcare

Macro uncertainty might hamper market growth

Two years of consistent growth. Since the beginning of the pandemic, in 2020, the health plan Figure 04: Health Plans Growth (M; %)
market has been growing quarter after quarter, after a long period of stagnation.
51 4%
Corporate segment keep gaining relevance. Corporate plans went from 63.5% of total lives in 2011 50 3%
to 69.3% in 3Q22. Until 2020, the lack of availability of individual plans and the higher costs 49 2%
associated to affinity plans caused this shift.
48 1%
SME plans as an alternative. Recently, SME plans – a sub-segment of corporate plans – started 47 0%
gaining traction and making a large part of the market growth, as it became an alternative to
46 -1%
individual and affinity plans.

3Q21

1Q22
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21

4Q21

2Q22
3Q22
Macro points to a challenging environment. Given the current uncertainty regarding the
macroeconomic scenario, we expect market growth to lose momentum, as unemployment may YoY Growth Health Plans
affect traditional corporate plans while lower average household income may affect SME plans.

Figure 03: Corporate Plans vs. Formal Jobs (YoY, %) Figure 05: Health Beneficiaries Breakdown by Type of Contract

10% 60M
50M
5%
40M
0% 30M

-5% 20M
10M
-10%
4Q16 4Q17 4Q18 4Q19 4Q20 4Q21 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Corporate Beneficiaries Formal Jobs Corporate Individual Group Affinity

Source: XP Research, ANS, IBGE EQUITY RESEARCH 5

Cost of Capital January 24, 2023
Healthcare

Higher cost of capital and high leverage – an undesired combination

Figure 06: Forward CDI Rate (%)

Interest rates increased two-fold in three years. The level of long-term interest rates has increased 14%
significantly since January 2020. In three years (from January 2020 to January 2023) the 5-year- 12%
forward CDI has gone from 6.3% to 12.6% (+6.4 p.p.). 10%
8%
Skyrocketing cost of capital. In our view, the companies’ marginal cost of capital (both cost of debt
6%
and cost of equity) should have increased at least the same amount as the CDI rate. Our view is 4%
based on the assumption that higher interest rates affect the companies’ ability to deliver earnings 2%
growth and also investors’ cost of opportunity. 0%
1Y 2Y 3Y 4Y 5Y

T0 -1Y -2Y -3Y

Figure 07: YE2022E Hospital and Outpatient Providers Leverage¹

6x High leverage is commonplace. Among the hospital providers within our coverage, leverage can go
5x beyond 5x EBITDA for some players, since all of them had very aggressive inorganic expansion
4x plans and took on large amounts of debt to make acquisitions. Indebtedness doubles down the
3x effect of interest rate increases eroding bottom-line.

2x Consolidation to slowdown. Given the current indebtedness of hospital providers and the current
1x level of interest rates, we find it unlikely that the consolidation process we have seen since 2019
0x continues at the same pace. We believe that acquisitions are no longer a major subject for hospital
DASA KRSA MATD RDOR (stand-alone) ONCO providers, as they may be focusing on efficiency and liability management at the moment.

ND/EBITDA ND/EBITDA ex. IFRS16

Source: XP Research | Note: (1) the debt balance includes lease liabilities, sellers’ notes and refinanced taxes EQUITY RESEARCH 6
 Healthcare

Rede D’Or
EQUITY RESEARCH 7
Rede D’Or January 24, 2023
Healthcare

Superb Execution, With Slower Growth Ahead

Introducing YE23 target price of R$28.8 and downgrading to Neutral

We are updating our estimates and introducing a YE23 target price of R$28.8, while downgrading to Neutral rating. On the positive side, Sul América’s acquisition may Rafael Barros, CFA
boost the aggressive organic growth plan the company has. However, we consider that the stock is currently fairly priced, since (i) cost and expense synergies from Healthcare & Education
SULA’s acquisition are limited; (ii) the business tends to become more complex going forward; and (iii) the growth profile of the company might change upon the [email protected]
acquisition. Our target price implies 2024E EV/EBITDA and P/E multiples of 10.0x and 18.1 (vs. 2023E trading multiples of 12.6x and 27.1x, respectively)
Raphael Elage
Sul América reducing the risk of organic expansion. The company plans to deliver 5.9k new beds organically from 2023 to 2025 (+51% vs. YE2022), being 36% of the Healthcare & Education
expansion represented by greenfield projects. We consider the plan risky, since we do not expect the health plan market to sustain its current growth pace. However, [email protected]
we note that the acquisition of SULA gives Rede D’Or a tool to accelerate the ramp-up of the expansion projects.

Synergies are not that straightforward. Since SULA’s and RDOR’s operations are quite different, we consider cost synergies to be almost inexistent and expense
synergies to be very limited. Still, upon the merger, Rede D’Or will be able to free some cash collateral from Sul América by posting some of its properties as collateral,
giving the company flexibility to use these funds.
Rede D'Or (RDOR3) Neutral
Slower growth going forward. We consider Rede D’Or the best player in the hospital segment – especially in terms of operating efficiency M&A integration. However, we Target Price (R$/sh.) 28.8
consider that the acquisition of Sul América adds substantial complexity and changes the growth profile of the business. Hence, we consider that at the current level, Current Price (R$/sh.) 28.2
there is no upside potential for the stock, and see current valuation as fair. Potential (%) 2.0%
Market Cap (R$ M) 64,422
# of shares (M) 2,282
Free Float (%) 48%
Estimates 2021A 2022E 2023E 2024A 2025E 2026E 2027E
ADTV (R$M) 185.4
Net Revenues (R$M) 41,385 46,745 53,286 60,905 70,012 78,565 87,402
EBITDA (R$M) 4,764 5,166 6,705 8,729 11,014 13,345 15,289 IBOV RDOR
150
EBITDA Margin (%) 11.5% 11.1% 12.6% 14.3% 15.7% 17.0% 17.5%
100
Adj. Net Income (R$M) 1,908 1,492 2,377 3,640 4,965 6,479 7,868
50
P/E (x) 27.1x 17.7x 13.0x 9.9x 8.2x
0
EV/EBITDA (x) 12.6x 9.8x 7.6x 6.1x 5.1x
Dec-20 Dec-21 Dec-22
Dividend Yield (%) 0.6% 1.2% 1.8% 2.5% 3.2%

Source: XP Research, Company | Note: net income adjusted for non-controlling income EQUITY RESEARCH 8
Organic Expansion – Rede D’Or January 24, 2023
Healthcare

Sul América becomes an important tool to enable organic growth

Figure 09: Organic Expansion – Breakdown by Region

An ambitious expansion plan. Rede D’Or plans to open 5.9k beds organically from 2023 to 2025,
Microregion Code UF Growth Stream Hospitals Beds
what represents a 51% increase in number of beds versus 2022E. 36% of the new beds will be in
São Paulo 350001 SP GF 2 480
greenfield projects – which we deem as riskier – and the remainder in brownfield projects.
Rio de Janeiro 330001 RJ GF 2 385
Sul América as a crucial tool to enable expansion. Considering the magnitude of the planned Recife 260001 PE GF 1 150

expansion, it is critical for Rede D’Or to have payors to anchor the projects. The acquisition of Sul Santos 350002 SP GF 1 150
Macaé - Rio das Ostras 330014 RJ GF 1 140
América – concluded in late December – fits the bill, since the healthcare insurer can provide the
Taubaté - Pindamonhangaba 350050 SP GF 1 123
new beds with some initial demand.
Others GF 664
Subtotal GF 8 2,092
São Paulo 350001 SP BF 7 1,124
Distrito Federal 530001 DF BF 2 313
Rio de Janeiro 330001 RJ BF 3 290
Figure 08: Organic Expansion – Breakdown by Year (# of beds) Salvador 290001 BA BF 2 270
São Luís 210001 MA BF 1 240
5,864 Aracaju 280001 SE BF 1 170
Belo Horizonte 310001 MG BF 1 150
Curitiba 410001 PR BF 1 100
São José dos Campos 350049 SP BF 2 100
João Pessoa 250001 PB BF 1 74
Recife 260001 PE BF 1 64
Fortaleza 230001 CE BF 1 63
Others 814
Subtotal BF 23 3,772
Total GF and BF 31 5,864

Source: XP Research, Company EQUITY RESEARCH 9

Synergies – Rede D’Or January 24, 2023
Healthcare

Synergies seem to be limited, yet there are clear gains on some fronts
Not a plug-and-play integration process. We consider the operations of Rede D’Or and Sul América Freeing up trapped cash. In order to comply with regulatory requirements, health insurers and
completely different, since the former has always been a healthcare services provider and the latter healthcare operators need to maintain a minimum cash balance to support the technical
was traditionally an insurer (which sold its mass insurance portfolio two years ago). Hence, we provisions – which in turn are provisions made to ensure that claims can be paid. Nevertheless, the
expect cost synergies to be minimal, but to see some opportunities in SG&A, since some back- regulatory agency (ANS) allows up to 20% of the required collateral to be composed of real estate,
office activities can be centralized. so Rede D’Or will be able to free some cash by using some of its properties as collateral.

Some (yet not much) expense savings. We optimistically assume that Rede D’Or will be able to Giving the company flexibility. We estimate that, once Rede D’Or posts properties as collateral, the
reduce SULA’s SG&A expenses from 6% of revenues in 2022 to less than 5% of revenues in 2025 required cash collateral will decrease from 63% in YE2022 to 46% in YE2026 (we assume the shift
already. Our assumption is backed by the company’s successful M&A track record and the to be gradual). Although this does not affect the P&L, since the cash collateral yields interest
experience that the management has in integrating acquired assets. income, it gives the company more flexibility to use these resources.

Figure 10: SULA’s SG&A Expenses Figure 11: Required Cash Collateral (%)

8% 100%

7% 80%

6% 60%

5% 40%

4% 20%

3% 0%
2023E

2030E

2029E
2021A

2022E

2024E

2025E

2026E

2027E

2028E

2029E

2031E

2032E

2033E

2021A

2022E

2023E

2024E

2025E

2026E

2027E

2028E

2030E

2031E

2032E

2033E
% of SULA Revenues % of Technical Provisions % of SULA Revenues

Source: XP Research, ANS, IBGE EQUITY RESEARCH 10

Discounted Cash Flow – Rede D’Or January 24, 2023
Healthcare

Our DCF valuation results in an equity value of R$65.6B and a TP of R$28.8 per share
DCF 2022A 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E Perp.
EBITDA 5,166 6,705 8,729 11,014 13,345 15,289 17,097 18,919 20,428 21,503 22,608 23,559 23,559
Cash Taxes (507) (829) (1,302) (1,796) (2,706) (3,567) (4,159) (4,750) (5,238) (5,598) (5,957) (6,267) (6,267)
Working Capital (1,380) 105 (630) (1,731) (1,526) (1,460) (1,431) (1,816) (1,455) (1,433) (1,530) (978) (978)
Other Adjustments 167 19 1,474 1,792 798 462 456 483 525 573 626 295 295
Operating Cash Flow 3,446 6,000 8,271 9,279 9,911 10,725 11,964 12,837 14,260 15,045 15,748 16,610 16,610
Capex (3,964) (3,855) (6,421) (4,053) (3,150) (3,515) (3,908) (4,301) (4,627) (4,858) (5,107) (5,317) (5,317)
FCF (517) 2,145 1,850 5,226 6,761 7,210 8,057 8,536 9,633 10,187 10,641 11,293 11,293
Financial Result (1,858) (1,695) (1,527) (1,387) (1,224) (948) (637) (288) 123 611 1,144 1,709 1,709
Change in Debt 3,390 - - - - - - - - - - - -
Lease Principal (190) (212) (260) (430) (535) (627) (728) (829) (901) (932) (966) (990) (990)
Noncontrolling Dividends (58) (74) (88) (105) (124) (146) (166) (185) (199) (206) (214) (221) (221)
Other Financing 70 (0) (0) 0 0 0 0 0 0 0 0 0 0
FCFE 837 164 (25) 3,305 4,878 5,489 6,527 7,234 8,657 9,660 10,605 11,790 11,790
Discount Factor 1.0710 1.2284 1.4090 1.6161 1.8537 2.1262 2.4387 2.7972 3.2084 3.6800
Present Value (24) 2,690 3,462 3,397 3,521 3,403 3,550 3,454 3,306 3,204 35,683
Equity Value 65,644 0.0% 4.1% 5.3% 5.2% 5.4% 5.2% 5.4% 5.3% 5.0% 4.9% 54.4%

Our discounted cash flow (DCF) valuation results in a YE23 equity value of Figure 12: Discount Rate Calculation Figure 13: Target Price Sensitivity
65.6B using a free cash flow to equity (FCFE) discounted by a cost of equity
Discount Rate
(Ke) of 14.7% and with a perpetuity growth rate (G) of 5.25%. Risk Free 3.50% Ke
Considering 2,282M shares outstanding, our DCF results in a YE23 target Market Risk Premium 5.50% 28.80 13.70% 14.20% 14.70% 15.20% 15.70%
Country Risk (Bps) 375 4.25% 30.60 28.80 27.10 25.60 24.30
price of R$28.8 per share.
Beta 0.90 4.75% 31.60 29.70 27.90 26.30 24.90
We ran a sensitivity analysis stressing both Ke and G +/- 1 p.p., and the TP Ke (USD) 12.20% 5.25% 32.80 30.70 28.80 27.10 25.50

G
lied within the R$24.3 and R$35.5 range. Currency Differential 2.50% 5.75% 34.10 31.80 29.70 27.90 26.30
Ke (BRL) 14.70% 6.25% 35.50 33.00 30.80 28.80 27.00
G - nominal 5.25%

Source: XP Research EQUITY RESEARCH 11

Trading Multiples – Rede D’Or January 24, 2023
Healthcare

We attribute the multiple compression to the increase in long-term interest rates

We see the stock trading below historical average both on EV/EBITDA and on P/E. Nevertheless, Since the company recently concluded the acquisition of Sul América, we believe that market
we attribute a larger portion of the multiple compression to a steep increase in long-term interest consensus is not entirely reliable. Hence, we cannot contrast our estimates with those of the
rates. Also, it is worth noting that the company concluded the acquisition of Sul América, changing market consensus.
the overall growth profile of the business and consequently lowering what we consider the fair
multiple for the stock.

Figure 14: 1y-Forward EV/EBITDA Figure 15: 1y-Forward P/E

35x 60x

30x 50x 48.9x

25x 24.0x 40x 38.4x

20x
17.8x 30x
27.8x
15x 24.7x
11.7x 20x
10x 11.6x

5x 10x

Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23
Average +1 SD -1 SD EV/EBITDA Average +1 SD -1 SD P/E

Source: XP Research, LSEG Refinitiv EQUITY RESEARCH 12

XP Estimates – Rede D’Or January 24, 2023
Healthcare

P&L 2021A 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 21-26 CAGR 26-33 CAGR
Net Revenues 41,385 46,745 53,286 60,905 70,012 78,565 87,402 96,695 105,980 114,470 121,784 129,716 135,968 13.7% 8.2%
YoY 13.0% 14.0% 14.3% 15.0% 12.2% 11.2% 10.6% 9.6% 8.0% 6.4% 6.5% 4.8%
COGS (34,176) (39,028) (43,884) (49,192) (55,689) (61,620) (68,221) (75,406) (82,576) (89,289) (95,291) (101,810) (106,881)
Gross Profit 7,209 7,717 9,401 11,713 14,323 16,945 19,181 21,289 23,404 25,181 26,493 27,906 29,087 18.6% 8.0%
% Margin 17.4% 16.5% 17.6% 19.2% 20.5% 21.6% 21.9% 22.0% 22.1% 22.0% 21.8% 21.5% 21.4% 4.1pp -0.2pp
Cash SG&A (2,445) (2,552) (2,696) (2,984) (3,309) (3,600) (3,892) (4,191) (4,484) (4,753) (4,989) (5,297) (5,528)
EBITDA 4,764 5,166 6,705 8,729 11,014 13,345 15,289 17,097 18,919 20,428 21,503 22,608 23,559 22.9% 8.5%
% Margin 11.5% 11.1% 12.6% 14.3% 15.7% 17.0% 17.5% 17.7% 17.9% 17.8% 17.7% 17.4% 17.3% 5.5pp 0.3pp
D&A (1,375) (1,582) (1,666) (1,950) (2,385) (2,611) (2,766) (2,952) (3,167) (3,406) (3,653) (3,901) (4,150)
EBIT 3,388 3,583 5,039 6,779 8,629 10,734 12,523 14,145 15,752 17,022 17,850 18,707 19,409 25.9% 8.8%
% Margin 8.2% 7.7% 9.5% 11.1% 12.3% 13.7% 14.3% 14.6% 14.9% 14.9% 14.7% 14.4% 14.3% 5.5pp 0.6pp
Financial Result (1,356) (1,858) (1,695) (1,527) (1,387) (1,224) (948) (637) (288) 123 611 1,144 1,709
EBT 2,032 1,725 3,345 5,252 7,243 9,510 11,575 13,508 15,465 17,145 18,462 19,851 21,118 36.2% 12.1%
Income Taxes (22) (160) (876) (1,502) (2,147) (2,876) (3,525) (4,119) (4,710) (5,198) (5,558) (5,936) (6,267)
% Effective Taxes -1.1% -9.3% -26.2% -28.6% -29.6% -30.2% -30.5% -30.5% -30.5% -30.3% -30.1% -29.9% -29.7%
Net Income 2,010 1,565 2,469 3,750 5,096 6,635 8,050 9,390 10,754 11,946 12,904 13,915 14,851 27.0% 12.2%

EBITDA ex. IFRS 16 4,195 4,517 6,039 7,960 10,120 12,339 14,165 15,844 17,536 18,943 19,957 20,996 21,887 24.1% 8.5%
% Margin 10.1% 9.7% 11.3% 13.1% 14.5% 15.7% 16.2% 16.4% 16.5% 16.5% 16.4% 16.2% 16.1% 5.6pp 0.4pp

Controlling S/H Income 1,908 1,492 2,377 3,640 4,965 6,479 7,868 9,183 10,523 11,698 12,646 13,647 14,575 27.7% 12.3%

Operating Beds 8,946 9,814 10,614 11,414 12,214 13,014 13,814 14,614 15,414 15,431 15,431 15,431 15,431 7.8% 2.5%
RDOR Revenues 20,382 23,258 26,641 30,763 35,775 40,236 44,984 50,145 55,332 59,378 61,856 64,514 66,893 14.6% 7.5%
YoY 14.1% 14.5% 15.5% 16.3% 12.5% 11.8% 11.5% 10.3% 7.3% 4.2% 4.3% 3.7%
RDOR EBITDA 4,897 5,477 6,640 7,923 9,515 11,021 12,671 14,177 15,695 16,873 17,587 18,352 19,037 17.6% 8.1%
% Margin 24.0% 23.5% 24.9% 25.8% 26.6% 27.4% 28.2% 28.3% 28.4% 28.4% 28.4% 28.4% 28.5% 3.4pp 1.1pp
RDOR Net Income 1,678 1,190 1,589 2,446 3,336 4,300 5,409 6,427 7,458 8,284 8,839 9,445 10,021 20.7% 12.8%

Health Plans (ex. ASO) 2,106 2,323 2,436 2,638 2,848 3,068 3,276 3,438 3,610 3,794 3,989 4,198 4,198 7.8% 4.6%
SULA Revenues 21,003 23,487 26,644 30,142 34,237 38,329 42,418 46,550 50,648 55,092 59,927 65,202 69,075 12.8% 8.8%
YoY 11.8% 13.4% 13.1% 13.6% 12.0% 10.7% 9.7% 8.8% 8.8% 8.8% 8.8% 5.9%
SULA Net Income 333 375 880 1,303 1,760 2,334 2,642 2,963 3,297 3,662 4,065 4,470 4,830 47.6% 10.9%

Sources: XP Research, Company | Note: Pro-forma consolidated unless noted otherwise EQUITY RESEARCH 13
XP Estimates – Rede D’Or January 24, 2023
Healthcare

Balance Sheet 2021A 2022E 2023E 2024E 2025E 2026E Cash Flow 2021A 2022E 2023E 2024E 2025E 2026E
Cash & Equivalents 17,896 17,880 17,663 16,850 19,024 22,302 EBITDA 4,764 5,166 6,705 8,729 11,014 13,345
Regulatory Collateral 12,284 12,973 13,794 14,246 14,421 15,506 Cash Taxes (18) (507) (829) (1,302) (1,796) (2,706)
Accounts Receivable 8,889 10,236 10,453 11,078 13,130 14,734 Working Capital (2,111) (1,380) 105 (630) (1,731) (1,526)
Inventories 735 706 761 856 1,017 1,131 Other Adjustments 14 167 19 1,474 1,792 798
Other Current Assets 1,603 1,773 1,774 2,017 2,339 2,616 CF Operations 2,648 3,446 6,000 8,271 9,279 9,911
Current Assets 41,407 43,568 44,445 45,047 49,931 56,290 Capex (5,289) (3,796) (3,855) (6,421) (4,053) (3,150)
Accounts Receivable 1,620 1,708 1,847 2,113 2,383 2,664 Other Investments (1,532) (167) - - - -
Regulatory Collateral 1,536 1,755 1,842 1,890 1,909 2,024 CF Investments (6,821) (3,964) (3,855) (6,421) (4,053) (3,150)
Other Non-Current Assets 6,398 7,245 7,248 7,585 7,769 8,180 Financial Result (1,356) (1,858) (1,695) (1,527) (1,387) (1,224)
Investments & Other Fixed 2,326 2,387 2,387 2,387 2,387 2,387 Change in Debt 5,163 3,390 - - - -
PP&E 9,097 10,591 12,838 17,338 19,002 19,526 Lease Principal (161) (190) (212) (260) (430) (535)
RoU 3,134 3,710 3,891 4,139 4,464 4,848 Noncontrolling Dividend (82) (58) (74) (88) (105) (124)
Intangibles 11,877 12,980 13,299 13,670 14,099 14,575 Other Financing (157) 70 (0) (0) 0 0
Noncurrent Assets 35,989 40,375 43,352 49,121 52,013 54,205 Capitalization/Reduction 1,879 0 - - - -
TOTAL ASSETS 77,396 83,943 87,797 94,168 101,945 110,494 Dividends (3,043) (665) (382) (787) (1,131) (1,599)
Suppliers 2,096 2,206 2,361 2,654 3,053 3,379 Change in Securities 2,972 (781) - - - -
Labor Obligations 794 1,037 1,097 1,232 1,458 1,618 Other Equity (216) (188) 0 0 (0) 0
Technical Provisions 6,486 6,410 6,805 7,647 8,493 9,346 CF Financing 4,999 (279) (2,363) (2,663) (3,052) (3,483)
Debt 2,672 5,324 5,324 5,324 5,324 5,324 Change in Cash 827 (796) (218) (812) 2,174 3,278
Leases 347 695 752 815 868 918
Other Current Liabilities 1,358 1,633 2,043 2,499 3,127 3,739
Current Liabilities 13,752 17,305 18,381 20,171 22,322 24,324 Ratios 2021A 2022E 2023E 2024E 2025E 2026E
Suppliers 165 148 157 176 196 215 Net Debt 14,216 18,352 18,917 20,115 18,263 15,294
Technical Provisions 7,536 8,619 9,150 10,282 11,420 12,567 Net Debt ex. IFRS16 10,712 14,118 14,336 15,149 12,974 9,696
Debt 25,936 26,674 26,675 26,675 26,675 26,675 Invested Capital 37,032 41,794 44,083 47,909 49,589 51,163
Leases 3,157 3,539 3,829 4,152 4,421 4,680 ND/EBITDA 3.0x 3.6x 2.8x 2.3x 1.7x 1.1x
Other Non-Current Liabilities 4,034 4,217 4,439 4,918 5,584 6,165 ND/EBITDA ex. IFRS16 2.6x 3.1x 2.4x 1.9x 1.3x 0.8x
Noncurrent Liabilities 40,827 43,197 44,250 46,203 48,296 50,302 Adj. ROIC 8.8% 7.1% 8.4% 10.3% 12.3% 14.8%
TOTAL LIABILITIES 54,579 60,502 62,631 66,374 70,618 74,625 Adj. ROE 9.0% 6.8% 10.2% 14.2% 17.2% 19.7%
TOTAL EQUITY 22,816 23,441 25,166 27,794 31,327 35,869 Payout Ratio 159.5% 44.6% 16.1% 21.6% 22.8% 24.7%

Sources: XP Research, Company | Note: Pro-forma consolidated EQUITY RESEARCH 14

 Healthcare

Oncoclínicas
EQUITY RESEARCH 15
Oncoclínicas January 24, 2023
Healthcare

Delivering the Expected Improvements

Introducing YE23 target price of R$9.3 and maintaining Buy rating

We are updating our estimates and introducing a YE23 target price of R$9.3, while maintaining a Buy rating. Our positive view on the stock is backed by: (i) a business Rafael Barros, CFA
with a more defensive profile, which may suffer less pressure from payors in the current environment; (ii) the company’s quick integration of Unity’s acquisition, which Healthcare & Education
should aid with further margin expansion in the short-term; and (iii) positive optionality from cancer centers, which can increase both margins and average ticket. Our [email protected]
target price implies 2024E EV/EBITDA and P/E multiples of 6.4x and 17.4 (vs. 2023E trading multiples of 7.1x and 36.9x, respectively)
Raphael Elage
Stable demand and advantageous positioning. Amid an uncertain scenario for the healthcare sector, the oncology segment can still perform positively due to its Healthcare & Education
defensive nature. Furthermore, Oncoclínicas seems to be better protected than other providers from the current pressures, since it is not positioned as a premium [email protected]
provider, but as a cost-efficient player that aims at delivering the best outcome possible at a mid-range ticket.

M&A integration ahead of expectations. The acquisition of Unity was concluded in the beginning of 3Q22, and quarterly results already showed margin improvements,
meaning that the company is being able to capture synergies very quickly. We see further room for the company to reduce costs and to dilute expenses, delivering
further margin expansion and earnings growth.
Oncoclínicas (ONCO3) Buy
Cancer centers can yield some extra gains. The company’s hospitals (cancer centers) are still ramping-up, and once operating leverage starts kicking-in, we can expect Target Price (R$/sh.) 9.3
average ticket and margins to increase. Also, the company has plans to open new cancer centers, what we see as a positive optionality to the current thesis. Current Price (R$/sh.) 7.1
Potential (%) 31.2%
Market Cap (R$ M) 3,660
# of shares (M) 516
Free Float (%) 30%
Estimates 2021A 2022E 2023E 2024A 2025E 2026E 2027E
ADTV (R$M) 11.3
Net Revenues (R$M) 2,702 4,059 5,335 6,237 7,116 7,861 8,545
Adj. EBITDA (R$M) 373 634 1,038 1,300 1,570 1,772 1,956 IBOV ONCO
150
Adj. EBITDA Margin (%) 13.8% 15.6% 19.5% 20.8% 22.1% 22.5% 22.9%
100
Adj. Net Income (R$M) 22 (17) 99 275 459 578 677
50
P/E (x) 36.9x 13.3x 8.0x 6.3x 5.4x
0
EV/EBITDA (x) 7.1x 5.6x 4.6x 4.0x 3.6x
Aug-21 Feb-22 Aug-22
Dividend Yield (%) 0.3% 1.0% 3.1% 5.8% 8.1%

Source: Company | Note: EBITDA adjusted for stock option expenses and net income adjusted for stock option expenses and for non-controlling income EQUITY RESEARCH 16
Discounted Cash Flow – Oncoclínicas January 24, 2023
Healthcare

Our DCF valuation results in an equity value of R$4.8B and a TP of R$9.3 per share
DCF 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E Perp.
EBITDA 611 1,038 1,300 1,570 1,772 1,956 2,154 2,368 2,597 2,844 3,109 3,302 3,302
Cash Taxes (113) (74) (185) (317) (384) (431) (482) (538) (600) (667) (742) (804) (804)
Working Capital (498) (112) 70 (91) (63) (70) (76) (83) (90) (97) (105) (64) (64)
Other Adjustments 19 - - - - - - - - - - - -
Operating Cash Flow 19 852 1,185 1,162 1,325 1,456 1,597 1,747 1,907 2,079 2,262 2,434 2,434
Capex (2,015) (187) (341) (380) (422) (463) (505) (550) (598) (648) (701) (744) (744)
FCF (1,996) 665 844 782 903 993 1,091 1,197 1,310 1,431 1,561 1,690 1,690
Financial Result (346) (474) (433) (384) (371) (371) (371) (370) (367) (362) (356) (345) (345)
Change in Debt 750 - - - - - - - - - - - -
Lease Principal (85) (66) (61) (78) (88) (95) (102) (109) (116) (123) (131) (133) (133)
Noncontrolling Dividends (28) (88) (94) (102) (103) (103) (102) (101) (110) (121) (132) (140) (140)
Other Financing 244 (0) (0) (0) 0 0 0 (0) (0) 0 (0) 0 0
FCFE (1,462) 37 256 219 340 425 517 618 717 825 943 1,072 1,072
Discount Factor 1.0789 1.2558 1.4618 1.7015 1.9806 2.3054 2.6835 3.1235 3.6358 4.2321
Present Value 237 174 233 250 261 268 267 264 259 253 2,333
Equity Value 4,801 4.9% 3.6% 4.8% 5.2% 5.4% 5.6% 5.6% 5.5% 5.4% 5.3% 48.6%

Our discounted cash flow (DCF) valuation results in a YE23 equity value of Figure 16: Discount Rate Calculation Figure 17: Target Price Sensitivity
4.8B using a free cash flow to equity (FCFE) discounted by a cost of equity
Cost of Equity
(Ke) of 16.4% and with a perpetuity growth rate (G) of 5.0%. Risk Free 3.50% Ke
Considering 516M shares outstanding, our DCF results in a YE23 target price Market Risk Premium 5.50% 9.30 15.40% 15.90% 16.40% 16.90% 17.40%
Country Risk (Bps) 375 4.00% 9.90 9.40 8.90 8.50 8.10
of R$9.3.
Beta 1.20 4.50% 10.10 9.60 9.10 8.60 8.20
We ran a sensitivity analysis stressing both Ke and G +/- 1 p.p., and the TP Ke (USD) 13.90% 5.00% 10.40 9.80 9.30 8.80 8.40

G
lied within the R$8.1 and R$11.0 range. Currency Differential 2.50% 5.50% 10.70 10.10 9.50 9.00 8.60
Ke (BRL) 16.40% 6.00% 11.00 10.40 9.80 9.30 8.80
G - nominal 5.00%

Source: XP Research EQUITY RESEARCH 17

Consensus and Trading Multiples – Oncoclínicas January 24, 2023
Healthcare

We consider the stock undervalued due to the company’s earnings growth prospects.
We see the stock trading close to historical average both on EV/EBITDA and on P/E. Yet, we Figure 18: XP vs. Consensus
consider the stock undervalued due to the company’s short-and-mid-term earnings growth
prospects. XP Consensus XP vs. Consensus

Contrasting our estimates with that of consensus, we are slightly more bullish on EBITDA margin, 2023E 2024E 2023E 2024E 2023E 2024E
which is consequently making our 2024E net income higher than consensus estimates. Revenues 5,335 6,237 5,381 6,245 -0.9% -0.1%
EBITDA 1,038 1,300 988 1,187 5.1% 9.5%
EBITDA Mg 19.5% 20.8% 18.4% 19.0% 1.1p.p. 1.8p.p.
Net Income 210 392 211 348 -0.7% 12.6%

Figure 19: 1y-Forward EV/EBITDA Figure 20: 1y-Forward P/E

16x 40x
14x 35x
12x 30x
10x 25x
21.5x
8x 8.3x 20x
6.5x 17.5x
6.4x 16.5x
6x 15x
11.6x
4x 4.6x 10x
2x 5x

Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22
Average +1 SD -1 SD EV/EBITDA Average +1 SD -1 SD P/E

Source: XP Research, LSEG Refinitiv EQUITY RESEARCH 18

XP Estimates – Oncoclínicas January 24, 2023
Healthcare

P&L 2021A 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 21-26 CAGR 26-33 CAGR
Number of Procedures (000) 382 501 625 686 743 784 816 849 884 920 957 996 1,021 15.4% 3.8%
Net Revenues 2,702 4,059 5,335 6,237 7,116 7,861 8,545 9,276 10,056 10,890 11,780 12,732 13,445 23.8% 8.0%
YoY 50.2% 31.4% 16.9% 14.1% 10.5% 8.7% 8.5% 8.4% 8.3% 8.2% 8.1% 5.6%
COGS (1,833) (2,647) (3,414) (3,957) (4,475) (4,944) (5,374) (5,833) (6,324) (6,848) (7,408) (8,007) (8,455)
Gross Profit 869 1,412 1,921 2,280 2,641 2,918 3,172 3,443 3,732 4,042 4,372 4,725 4,990 27.4% 8.0%
% Margin 32.2% 34.8% 36.0% 36.6% 37.1% 37.1% 37.1% 37.1% 37.1% 37.1% 37.1% 37.1% 37.1% 5.0pp 0.0pp
Cash SG&A (565) (801) (882) (980) (1,071) (1,146) (1,215) (1,288) (1,365) (1,445) (1,528) (1,616) (1,688)
EBITDA 304 611 1,038 1,300 1,570 1,772 1,956 2,154 2,368 2,597 2,844 3,109 3,302 42.2% 9.3%
% Margin 11.3% 15.0% 19.5% 20.8% 22.1% 22.5% 22.9% 23.2% 23.5% 23.8% 24.1% 24.4% 24.6% 11.3pp 2.0pp
D&A (127) (180) (206) (228) (262) (299) (337) (378) (420) (464) (511) (560) (611)
EBIT 177 431 833 1,072 1,308 1,473 1,619 1,777 1,948 2,133 2,333 2,549 2,691 52.7% 9.0%
% Margin 6.6% 10.6% 15.6% 17.2% 18.4% 18.7% 18.9% 19.2% 19.4% 19.6% 19.8% 20.0% 20.0% 12.2pp 1.3pp
Financial Result (115) (346) (474) (433) (384) (371) (371) (371) (370) (367) (362) (356) (345)
EBT 62 85 359 638 924 1,102 1,248 1,406 1,578 1,766 1,971 2,194 2,347 77.6% 11.4%
Income Taxes (85) (57) (149) (246) (338) (395) (443) (495) (552) (616) (685) (761) (815)
% Effective Taxes -135.9% -67.2% -41.6% -38.5% -36.5% -35.8% -35.5% -35.2% -35.0% -34.9% -34.8% -34.7% -34.7%
Net Income (22) 28 210 392 587 707 805 911 1,026 1,151 1,286 1,433 1,531 n.m. 11.7%

Adj. EBITDA 373 634 1,038 1,300 1,570 1,772 1,956 2,154 2,368 2,597 2,844 3,109 3,302 36.5% 9.3%
% Margin 13.8% 15.6% 19.5% 20.8% 22.1% 22.5% 22.9% 23.2% 23.5% 23.8% 24.1% 24.4% 24.6% 8.7pp 2.0pp
Adj. EBITDA ex. IFRS 16 334 522 942 1,188 1,442 1,630 1,802 1,987 2,187 2,401 2,632 2,880 3,060 37.3% 9.4%
% Margin 12.4% 12.9% 17.7% 19.0% 20.3% 20.7% 21.1% 21.4% 21.7% 22.0% 22.3% 22.6% 22.8% 8.4pp 2.0pp
Adj. Net Income (ONCO) 47 51 210 392 587 707 805 911 1,026 1,151 1,286 1,433 1,531 72.1% 11.7%
Adj. Net Income (XP) 22 (17) 99 275 459 578 677 784 900 1,012 1,135 1,267 1,356 91.7% 13.0%

Sources: XP Research, Company EQUITY RESEARCH 19

XP Estimates – Oncoclínicas January 24, 2023
Healthcare

Balance Sheet 2021A 2022E 2023E 2024E 2025E 2026E Cash Flow 2021A 2022E 2023E 2024E 2025E 2026E
Cash & Equivalents 2,051 569 594 815 922 1,050 EBITDA 304 611 1,038 1,300 1,570 1,772
Accounts Receivable 666 1,290 1,519 1,569 1,780 1,938 Cash Taxes (86) (113) (74) (185) (317) (384)
Inventories 69 135 156 177 199 217 Working Capital (286) (498) (112) 70 (91) (63)
Other Current Assets 134 215 253 291 330 359 Other Adjustments (2) 19 - - - -
Current Assets 2,920 2,209 2,522 2,852 3,230 3,563 CF Operations (71) 19 852 1,185 1,162 1,325
Other Assets 145 203 138 89 79 71 Capex (1,143) (1,874) (187) (341) (380) (422)
PP&E 478 687 741 812 896 989 Other Investments (73) (141) - - - -
RoU 251 380 414 457 509 566 CF Investments (1,216) (2,015) (187) (341) (380) (422)
Intangible 2,238 3,898 3,887 3,998 4,108 4,223 Financial Result (115) (346) (474) (433) (384) (371)
Noncurrent Assets 3,113 5,169 5,181 5,356 5,592 5,848 Change in Debt 1,014 750 - - - -
TOTAL ASSETS 6,032 7,378 7,702 8,208 8,822 9,412 Lease Principal (22) (85) (66) (61) (78) (88)
Noncontrolling Dividend (12) (28) (88) (94) (102) (103)
Suppliers 427 590 681 774 870 948
Other Financing (0) 244 (0) (0) (0) 0
Debt 442 576 576 576 576 576
Capitalization/Reduction 1,509 (60) - - - -
Leases 80 119 127 138 150 159
Dividends (14) (5) (12) (35) (112) (212)
Labor Obligations 37 59 64 72 81 89
Change in Securities (1,435) 1,018 - - - -
Other Current Liabilities 204 226 288 408 562 694
Other Equity 159 45 0 0 (0) (0)
Current Liabilities 1,191 1,571 1,735 1,969 2,239 2,465
CF Financing 1,083 1,532 (640) (623) (676) (774)
Debt 2,174 2,789 2,789 2,789 2,789 2,789
Change in Cash (204) (464) 25 221 107 129
Wage and Social Obligations 12 0 0 0 0 0
Lease Obligations 232 305 330 373 415 459
Ratios 2021A 2022E 2023E 2024E 2025E 2026E
Other Liabilities 119 179 206 232 259 280
Net Debt 834 3,160 3,165 2,995 2,938 2,863
Noncurrent Liabilities 2,537 3,273 3,324 3,394 3,463 3,528
Net Debt ex. IFRS16 565 2,796 2,771 2,550 2,443 2,315
TOTAL LIABILITIES 3,727 4,843 5,060 5,363 5,702 5,993
Invested Capital 3,139 5,694 5,808 5,840 6,058 6,282
Controlling Equity 1,854 1,999 2,085 2,264 2,514 2,786
Non-Controlling Equity 451 536 558 581 607 632 ND/EBITDA 2.2x 5.0x 3.0x 2.3x 1.9x 1.6x
TOTAL EQUITY 2,305 2,534 2,643 2,845 3,120 3,419 ND/EBITDA ex. IFRS16 1.7x 5.4x 2.9x 2.1x 1.7x 1.4x
Adj. ROIC 7.8% 8.2% 8.2% 11.1% 14.2% 15.6%
Adj. ROE 2.0% -0.9% 4.9% 12.7% 19.2% 21.8%
Payout Ratio n.m. 120.4% 47.9% 32.8% 36.5% 44.5%

Sources: XP Research, Company EQUITY RESEARCH 20

 Healthcare

Mater Dei
EQUITY RESEARCH 21
Mater Dei January 24, 2023
Healthcare

A Conservative Approach to Expansion

Updating YE23 target price to R$9.9 and maintaining Buy rating

We are updating our estimates and updating the YE23 target price to R$9.9, while maintaining a Buy rating. Our positive view is driven by: (i) the fact that top-line growth Rafael Barros, CFA
should come entirely from the company’s current hospitals, yielding higher marginal returns; (ii) opportunities to capture synergies from recent acquisitions, with Healthcare & Education
potential to expand both average ticket and margins; and (iii) attractive valuation, trading at the lowest P/E multiple of our hospitals coverage. Our target price implies [email protected]
2024E EV/EBITDA and P/E multiples of 6.2x and 9.4 (vs. 2023E trading multiples of 6.6x and 9.8x, respectively)
Raphael Elage
Growth to yield margin expansion. Mater Dei’s projected top-line growth will come entirely from its current hospitals, meaning that as operations ramp-up we can Healthcare & Education
expect margin and ROIC expansion. Also, the company is conservative regarding the ramp-up of new operations, expecting a 5-to-7-year-period for newer hospitals to [email protected]
become fully mature. This gives us more confidence that management will be able to stay on track with the expansion plans and that both top-line and margins will
increase steadily.

Room for efficiency gains. The company is still capturing synergies from the acquisitions made since its IPO, and, as the integration processes go forward, we expect
average ticket to increase and margins to expand.
Mater Dei (MATD3) Buy
Attractive valuation. The 2023E P/E multiple of 9.8x is the cheapest among hospital providers within our coverage. Thus, we see a larger margin for error in our Target Price (R$/sh.) 9.9
projections for this company compared to what we have for other hospital providers. Current Price (R$/sh.) 7.4
Potential (%) 34.7%
Market Cap (R$ M) 2,810
# of shares (M) 382
Free Float (%) 21%
Estimates 2021A 2022E 2023E 2024A 2025E 2026E 2027E
ADTV (R$M) 3.5
Net Revenues (R$M) 1,024 1,762 2,461 3,000 3,507 3,943 4,344
Adj. EBITDA (R$M) 311 460 700 882 1,046 1,187 1,316 IBOV MATD
150
Adj. EBITDA Margin (%) 30.4% 26.1% 28.4% 29.4% 29.8% 30.1% 30.3%
100
Adj. Net Income (R$M) 163 202 287 404 525 534 601
50
P/E (x) 9.8x 7.0x 5.4x 5.3x 4.7x
0
EV/EBITDA (x) 6.6x 5.1x 4.2x 3.7x 3.4x
Apr-21 Oct-21 Apr-22 Oct-22
Dividend Yield (%) 1.4% 2.9% 5.9% 9.5% 11.7%

Source: XP Research, Company | Note: EBITDA adjusted for non-recurring items and net income adjusted for non-recurring items, goodwill tax benefit and non-controlling income EQUITY RESEARCH 22
Discounted Cash Flow – Mater Dei January 24, 2023
Healthcare

Our DCF valuation results in an equity value of R$3.8B and a TP of R$9.9 per share
DCF 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E Perp.
EBITDA 428 688 867 1,029 1,167 1,295 1,355 1,402 1,453 1,502 1,556 1,603 1,603
Cash Taxes (43) (73) (128) (222) (262) (295) (305) (312) (319) (327) (336) (343) (343)
Working Capital (131) (48) (63) (68) (61) (46) (27) (27) (27) (21) (21) (21) (21)
Other Adjustments 1 - - - - - - - - - - - -
Operating Cash Flow 255 567 676 739 844 955 1,023 1,064 1,106 1,155 1,200 1,239 1,239
Capex (1,193) (38) (69) (98) (225) (248) (258) (267) (276) (285) (295) (303) (303)
FCF (938) 528 607 641 620 707 765 797 831 870 905 936 936
Financial Result (156) (235) (222) (184) (174) (178) (183) (190) (198) (204) (211) (217) (217)
Change in Debt 403 - - - - - - - - - - - -
Lease Principal (5) (22) (11) (35) (46) (50) (44) (35) (25) (12) 1 18 18
Noncontrolling Dividends (10) (28) (36) (43) (49) (54) (56) (57) (59) (60) (62) (63) (63)
Other Financing (78) 0 (0) (0) (0) 0 0 0 (0) (0) (0) 0 0
FCFE (785) 243 338 380 351 425 481 514 550 593 634 674 674
Discount Factor 1.0789 1.2558 1.4618 1.7015 1.9806 2.3054 2.6835 3.1235 3.6358 4.2321
Present Value 313 302 240 250 243 223 205 190 174 159 1,466
Equity Value 3,767 8.3% 8.0% 6.4% 6.6% 6.4% 5.9% 5.4% 5.0% 4.6% 4.2% 38.9%

Our discounted cash flow (DCF) valuation results in a YE23 equity value of Figure 21: Discount Rate Calculation Figure 22: Target Price Sensitivity
3.8B using a free cash flow to equity (FCFE) discounted by a cost of equity
Cost of Equity
(Ke) of 16.4% and with a perpetuity growth rate (G) of 5.0%. Risk Free 3.50% Ke
Considering 382M shares outstanding, our DCF results in a YE23 target price Market Risk Premium 5.50% 9.90 15.40% 15.90% 16.40% 16.90% 17.40%
Country Risk (Bps) 375 4.00% 10.40 9.90 9.50 9.10 8.80
of R$9.9.
Beta 1.20 4.50% 10.60 10.10 9.70 9.30 8.90
We ran a sensitivity analysis stressing both Ke and G +/- 1 p.p., and the TP Ke (USD) 13.90% 5.00% 10.80 10.30 9.90 9.40 9.00

G
lied within the R$8.8 and R$11.3 range. Currency Differential 2.50% 5.50% 11.10 10.50 10.00 9.60 9.20
Ke (BRL) 16.40% 6.00% 11.30 10.80 10.30 9.80 9.40
G - nominal 5.00%

Source: XP Research EQUITY RESEARCH 23

Consensus and Trading Multiples – Mater Dei January 24, 2023
Healthcare

We consider the stock undervalued, as the company combines earnings growth with high returns
We see the stock trading below historical average both on EV/EBITDA and on P/E. Although Figure 23: XP vs. Consensus
attributing a portion of the earnings compression to higher interest rates, we consider the stock
undervalued, since the company combines earnings growth with high ROE and ROIC. XP Consensus XP vs. Consensus

Contrasting our estimates with that of consensus, our figures look more bullish. However, we note 2023E 2024E 2023E 2024E 2023E 2024E
that recently the company started adding the goodwill tax benefit to adjusted net income, which Revenues 2,461 3,000 2,357 2,765 4.4% 8.5%
means that the consensus may still have a different metric for bottom-line. EBITDA 700 882 646 771 8.4% 14.3%
EBITDA Mg 28.4% 29.4% 27.4% 27.9% 1.1p.p. 1.5p.p.
Net Income 322 449 229 277 40.9% 62.2%

Figure 24: 1y-Forward EV/EBITDA Figure 25: 1y-Forward P/E

20x 40x
18x 35x
16x
30x
14x 26.6x
13.2x 25x
12x
10x 9.7x 20x 19.2x
8x 15x
6.7x
6x 11.7x
6.2x 10x 10.6x
4x
2x 5x

May-21 Aug-21 Nov-21 Feb-22 May-22 Aug-22 Nov-22 May-21 Aug-21 Nov-21 Feb-22 May-22 Aug-22 Nov-22
Average +1 SD -1 SD EV/EBITDA Average +1 SD -1 SD P/E

Source: XP Research, LSEG Refinitiv EQUITY RESEARCH 24

XP Estimates – Mater Dei January 24, 2023
Healthcare

P&L 2021A 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 21-26 CAGR 26-33 CAGR
Operating Beds 653 1,289 1,659 1,857 2,017 2,177 2,308 2,319 2,319 2,319 2,319 2,319 2,319 27.2% 0.9%
Net Revenues 1,024 1,762 2,461 3,000 3,507 3,943 4,344 4,535 4,681 4,838 4,997 5,170 5,320 30.9% 4.4%
YoY 72.0% 39.7% 21.9% 16.9% 12.4% 10.2% 4.4% 3.2% 3.4% 3.3% 3.5% 2.9%
COGS (587) (1,066) (1,485) (1,797) (2,097) (2,356) (2,593) (2,707) (2,792) (2,885) (2,978) (3,080) (3,167)
Gross Profit 437 696 976 1,202 1,411 1,587 1,750 1,828 1,888 1,954 2,019 2,090 2,153 29.4% 4.5%
% Margin 42.7% 39.5% 39.6% 40.1% 40.2% 40.3% 40.3% 40.3% 40.3% 40.4% 40.4% 40.4% 40.5% -2.4pp 0.2pp
Cash SG&A (154) (268) (288) (335) (381) (420) (455) (472) (486) (501) (517) (534) (550)
EBITDA 283 428 688 867 1,029 1,167 1,295 1,355 1,402 1,453 1,502 1,556 1,603 32.7% 4.6%
% Margin 27.6% 24.3% 28.0% 28.9% 29.3% 29.6% 29.8% 29.9% 30.0% 30.0% 30.1% 30.1% 30.1% 2.0pp 0.5pp
D&A (41) (90) (106) (118) (133) (150) (169) (189) (209) (227) (246) (264) (281)
EBIT 242 338 582 749 897 1,017 1,126 1,166 1,194 1,225 1,257 1,292 1,322 33.3% 3.8%
% Margin 23.6% 19.2% 23.7% 25.0% 25.6% 25.8% 25.9% 25.7% 25.5% 25.3% 25.1% 25.0% 24.8% 2.2pp -1.0pp
Financial Result (22) (156) (235) (222) (184) (174) (178) (183) (190) (198) (204) (211) (217)
EBT 220 182 347 527 713 844 948 983 1,003 1,028 1,052 1,082 1,105 30.8% 3.9%
Income Taxes (74) (55) (107) (163) (221) (261) (294) (305) (311) (319) (326) (335) (342)
% Effective Taxes -33.4% -30.0% -31.0% -31.0% -31.0% -31.0% -31.0% -31.0% -31.0% -31.0% -31.0% -31.0% -31.0%
Net Income 147 127 239 364 492 582 654 678 692 709 726 747 762 31.7% 3.9%

Adj. EBITDA 311 460 700 882 1,046 1,187 1,316 1,377 1,425 1,476 1,527 1,581 1,629 30.7% 4.6%
% Margin 30.4% 26.1% 28.4% 29.4% 29.8% 30.1% 30.3% 30.4% 30.4% 30.5% 30.6% 30.6% 30.6% -0.3pp 0.5pp
Adj. EBITDA ex. IFRS 16 266 384 597 756 899 1,021 1,134 1,187 1,229 1,273 1,317 1,364 1,406 30.8% 4.7%
% Margin 26.0% 21.8% 24.2% 25.2% 25.6% 25.9% 26.1% 26.2% 26.2% 26.3% 26.4% 26.4% 26.4% -0.1pp 0.5pp
Adj. Net Income (MATD) 165 223 322 449 578 595 669 693 708 726 743 764 780 29.2% 3.9%
Adj. Net Income (XP) 163 202 287 404 525 534 601 623 637 652 668 686 701 26.7% 4.0%

Sources: XP Research, Company EQUITY RESEARCH 25

XP Estimates – Mater Dei January 24, 2023
Healthcare

Balance Sheet 2021A 2022E 2023E 2024E 2025E 2026E Cash Flow 2021A 2022E 2023E 2024E 2025E 2026E
Cash & Equivalents 1,279 486 690 948 1,160 1,243 EBITDA 283 428 688 867 1,029 1,167
Accounts Receivable 391 605 707 835 973 1,091 Cash Taxes (100) (43) (73) (128) (222) (262)
Inventories 35 61 74 87 101 114 Working Capital (46) (131) (48) (63) (68) (61)
Other Current Assets 44 101 94 88 83 91 Other Adjustments - 1 - - - -
Current Assets 1,749 1,253 1,565 1,959 2,317 2,539 CF Operations 137 255 567 676 739 844
Other Assets 325 381 267 151 72 80 Capex (1,288) (946) (140) (171) (200) (225)
Investments 40 45 45 45 45 45 Other Investments (297) (246) 102 102 102 -
PP&E 250 519 577 654 747 850 CF Investments (1,585) (1,193) (38) (69) (98) (225)
RoU 549 726 794 881 984 1,101 Financial Result (22) (156) (235) (222) (184) (174)
Intangible 1,178 1,956 1,962 1,971 1,983 1,996 Change in Debt 882 403 - - - -
Noncurrent Assets 2,341 3,626 3,646 3,703 3,832 4,072 Lease Principal 13 (5) (22) (11) (35) (46)
TOTAL ASSETS 4,090 4,879 5,211 5,662 6,149 6,611 Noncontrolling Dividend - (10) (28) (36) (43) (49)
Suppliers 89 137 165 194 225 253 Other Financing 428 (78) 0 (0) (0) (0)
Debt 83 100 100 100 100 100 Capitalization/Reduction 1,141 - - - - -
Leases 64 79 86 97 108 119 Controlling Dividends (27) (29) (38) (81) (167) (268)
Labor Obligations 37 72 67 78 89 99 Change in Securities (129) 278 - - - -
Other Current Liabilities 72 77 113 186 280 338 Other Equity 42 21 (0) (0) 0 0
Current Liabilities 346 463 531 654 801 908 CF Financing 2,326 424 (324) (349) (429) (536)
Debt 1,062 1,447 1,448 1,448 1,448 1,448 Change in Cash 879 (514) 204 258 212 83
Leases 515 704 773 871 966 1,067 Ratios 2021A 2022E 2023E 2024E 2025E 2026E
Other Liabilities 484 544 591 635 680 717 Net Debt 445 1,845 1,717 1,568 1,461 1,490
Noncurrent Liabilities 2,061 2,696 2,812 2,954 3,094 3,232 Net Debt ex. IFRS16 (134) 1,062 857 600 387 304
TOTAL LIABILITIES 2,407 3,159 3,343 3,608 3,896 4,140 Invested Capital 2,129 3,565 3,585 3,622 3,715 3,961
Controlling Equity 1,640 1,645 1,786 1,962 2,151 2,356
ND/EBITDA 1.4x 4.0x 2.5x 1.8x 1.4x 1.3x
Non-Controlling Equity 43 76 83 92 102 115
ND/EBITDA ex. IFRS16 n.a. 2.8x 1.4x 0.8x 0.4x 0.3x
TOTAL EQUITY 1,683 1,720 1,868 2,054 2,254 2,471
Adj. ROIC 12.9% 11.7% 13.6% 16.7% 19.2% 18.6%
Adj. ROE 17.0% 13.1% 18.0% 22.9% 26.9% 25.2%
Payout Ratio 18.6% 22.7% 15.9% 22.1% 34.0% 46.0%

Sources: XP Research, Company EQUITY RESEARCH 26

 Healthcare

Kora Saúde
EQUITY RESEARCH 27
Kora Saúde January 24, 2023
Healthcare

Indebtedness Becomes a Dangerous Villain

Introducing YE23 target price of R$1.3 and downgrading to Neutral

We are updating our estimates and introducing a YE23 target price of R$1.3, while downgrading to Neutral rating. Regardless of seeing a 30% upside potential for the Rafael Barros, CFA
stock, we believe that the risks of the thesis became too high. Our view is backed by the company’s: (i) recent deterioration in operating performance; (ii) leverage ratio Healthcare & Education
of more than 5x EBITDA amid a high interest rate environment; and (iii) lack of room to continue executing its growth strategy. Our target price implies 2024E [email protected]
EV/EBITDA and P/E multiples of 6.1x and 13.1 (vs. 2023E trading multiples of 6.3x and 17.5x, respectively)
Raphael Elage
Pressured operation. In the last quarterly results, Kora showed significant deterioration in its operating performance, with an increase in disallowances (“glosas”), Healthcare & Education
stagnant (or even decreasing) average ticket, extension of receivables’ term, and pressured margins. We do not expect to the company recovering from such condition [email protected]
in the short-term, since this may happen only when payors start enjoying some relief in the MLR levels.

Leverage is beyond uncomfortable. Most hospital operators took on a significant amount of debt to seek inorganic growth, and Kora was no exception to that. We
estimate Kora’s leverage to be 5.2x EBITDA by YE2022 – even considering the sale of approximately R$400M in receivables in late December. We consider that the
company’s current capital structure adds substantial risk to the stock and creates a major drag to bottom-line.
Kora Saúde (KRSA3) Neutral
Expansion seems to be on hold. Kora’s thesis has been highly reliant on acquisitions, following a roll-up strategy. However, we do not see room for the company to Target Price (R$/sh.) 1.3
keep expanding its operation (either organically or inorganically) with the current balance sheet, meaning that if it decides to resume its acquisition strategy, it will Current Price (R$/sh.) 1.0
most likely need a capital injection. Potential (%) 30.0%
Market Cap (R$ M) 767
# of shares (M) 767
Free Float (%) 19%
Estimates 2021A 2022E 2023E 2024A 2025E 2026E 2027E
ADTV (R$M) 0.6
Net Revenues (R$M) 1,262 2,033 2,434 2,696 2,914 3,094 3,242
Adj. EBITDA (R$M) 310 450 561 631 691 743 786 IBOV KRSA
150
Adj. EBITDA Margin (%) 24.5% 22.1% 23.0% 23.4% 23.7% 24.0% 24.3%
100
Adj. Net Income (R$M) 42 39 44 61 136 180 210
50
P/E (x) 17.5x 12.6x 5.6x 4.3x 3.7x
0
EV/EBITDA (x) 6.3x 5.5x 5.0x 4.5x 4.1x
Aug-21 Feb-22 Aug-22
Dividend Yield (%) 0.4% 0.0% 0.6% 3.1% 5.0%

Source: XP Research, Company | Note: EBITDA adjusted for non-recurring items and net income adjusted for non-recurring items, goodwill tax benefit and non-controlling income EQUITY RESEARCH 28
Discounted Cash Flow – Kora Saúde January 24, 2023
Healthcare

Our DCF valuation results in an equity value of R$976M and a TP of R$1.3 per share
DCF 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E Perp.
EBITDA 390 561 631 691 743 786 819 847 877 907 939 968 968
Cash Taxes (79) (29) (38) (67) (84) (76) (85) (125) (153) (164) (177) (188) (188)
Working Capital 107 (345) (24) (47) (35) (33) (27) (26) (26) (27) (27) (27) (27)
Other Adjustments 78 - - - - - - - - - - - -
Operating Cash Flow 496 187 569 578 624 677 707 695 698 716 736 752 752
Capex (604) (85) (94) (146) (155) (162) (169) (174) (180) (187) (193) (199) (199)
FCF (108) 102 474 432 469 515 538 520 517 529 543 553 553
Financial Result (342) (389) (372) (323) (305) (297) (290) (282) (276) (269) (262) (254) (254)
Change in Debt 858 - (100) (100) (100) - - - - - - - -
Lease Principal (7) (16) (7) (16) (19) (19) (19) (18) (17) (16) (15) (13) (13)
Noncontrolling Dividends (1) (10) (12) (13) (15) (16) (16) (17) (17) (18) (19) (19) (19)
Other Financing 11 0 0 0 (0) (0) 0 0 (0) 0 (0) (0) (0)
FCFE 410 (313) (17) (20) 31 183 213 203 207 226 247 268 268
Discount Factor 1.0863 1.2818 1.5125 1.7848 2.1061 2.4851 2.9325 3.4603 4.0832 4.8181
Present Value (15) (15) 20 102 101 82 70 65 61 56 449
Equity Value 976 -1.6% -1.6% 2.1% 10.5% 10.4% 8.4% 7.2% 6.7% 6.2% 5.7% 46.0%

Our discounted cash flow (DCF) valuation results in a YE23 equity value of Figure 26: Discount Rate Calculation Figure 27: Target Price Sensitivity
976M using a free cash flow to equity (FCFE) discounted by a cost of equity
Cost of Equity
(Ke) of 16.4% and with a perpetuity growth rate (G) of 5.0%. Risk Free 3.50% Ke
Considering 767M shares outstanding, our DCF results in a YE23 target price Market Risk Premium 5.50% 1.27 17.00% 17.50% 18.00% 18.50% 19.00%
Country Risk (Bps) 375 4.00% 1.35 1.29 1.23 1.17 1.12
of R$1.27.
Beta 1.50 4.50% 1.38 1.31 1.25 1.19 1.13
We ran a sensitivity analysis stressing both Ke and G +/- 1 p.p., and the TP Ke (USD) 15.50% 5.00% 1.41 1.34 1.27 1.21 1.15

G
lied within the R$1.12 and R$1.48 range. Currency Differential 2.50% 5.50% 1.45 1.37 1.30 1.23 1.17
Ke (BRL) 18.00% 6.00% 1.48 1.40 1.33 1.26 1.20
G - nominal 5.00%

Source: XP Research EQUITY RESEARCH 29

Consensus and Trading Multiples – Kora Saúde January 24, 2023
Healthcare

We expect a downward earnings revision, meaning that trading multiples are likely to adjust
We see the stock trading below historical average both on EV/EBITDA and on P/E. We attribute the Figure 28: XP vs. Consensus
multiple compression to a tougher operating environment combined with higher interest rates and
high leverage. Also, we expect a downward earnings revision, meaning that the multiples are likely XP Consensus XP vs. Consensus
to adjust in the near term. 2023E 2024E 2023E 2024E 2023E 2024E
Contrasting our estimates with that of consensus, our figures look more bearish. However, we Revenues 2,434 2,696 2,533 3,096 -3.9% -12.9%
believe that consensus has not yet incorporated the company’s current financial deterioration. EBITDA 561 631 572 713 -1.9% -11.5%
EBITDA Mg 23.0% 23.4% 22.6% 23.0% 0.5p.p. 0.4p.p.
Net Income 56 76 111 170 -49.2% -55.4%

Figure 29: 1y-Forward EV/EBITDA Figure 30: 1y-Forward P/E

20x 40x
18x 35x
16x
30x
14x
12x 25x 23.4x
10x 10.1x 20x
8x 7.5x 15x 15.7x
6x
5.0x 10x
4x 5.0x 8.1x
2x 5x 5.3x

Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22
Average +1 SD -1 SD EV/EBITDA Average +1 SD -1 SD P/E

Source: XP Research, LSEG Refinitiv EQUITY RESEARCH 30

XP Estimates – Kora Saúde January 24, 2023
Healthcare

P&L 2021A 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 21-26 CAGR 26-33 CAGR
Operating Beds 1,563 1,780 1,880 1,922 1,965 1,965 1,965 1,965 1,965 1,965 1,965 1,965 1,965 4.7% 0.0%
Net Revenues 1,262 2,033 2,434 2,696 2,914 3,094 3,242 3,372 3,486 3,608 3,730 3,863 3,980 19.6% 3.7%
YoY 61.1% 19.7% 10.8% 8.1% 6.2% 4.8% 4.0% 3.4% 3.5% 3.4% 3.6% 3.0%
COGS (939) (1,538) (1,775) (1,947) (2,090) (2,209) (2,305) (2,397) (2,477) (2,564) (2,651) (2,746) (2,829)
Gross Profit 323 496 658 749 824 886 937 975 1,009 1,044 1,079 1,118 1,151 22.4% 3.8%
% Margin 25.6% 24.4% 27.0% 27.8% 28.3% 28.6% 28.9% 28.9% 28.9% 28.9% 28.9% 28.9% 28.9% 3.0pp 0.3pp
Cash SG&A (163) (178) (184) (200) (213) (224) (233) (242) (250) (258) (266) (275) (284)
EBITDA 160 318 474 549 611 662 703 733 759 786 813 842 867 32.9% 3.9%
% Margin 12.6% 15.6% 19.5% 20.4% 21.0% 21.4% 21.7% 21.7% 21.8% 21.8% 21.8% 21.8% 21.8% 8.7pp 0.4pp
D&A (73) (121) (146) (138) (135) (137) (140) (143) (148) (153) (158) (163) (169)
EBIT 86 197 328 411 476 525 564 590 611 633 655 679 698 43.5% 4.2%
% Margin 6.8% 9.7% 13.5% 15.2% 16.3% 17.0% 17.4% 17.5% 17.5% 17.6% 17.6% 17.6% 17.5% 10.1pp 0.6pp
Financial Result (130) (342) (389) (372) (323) (305) (297) (290) (282) (276) (269) (262) (254)
EBT (44) (145) (62) 39 154 220 266 300 329 358 386 417 444 n.m. 10.6%
Income Taxes (58) 5 (9) (45) (81) (103) (120) (132) (144) (155) (167) (180) (191)
% Effective Taxes 132.4% -3.5% 14.5% -115.9% -52.5% -46.8% -44.9% -44.1% -43.7% -43.4% -43.3% -43.1% -43.0%
Net Income (101) (140) (70) (6) 73 117 147 168 185 202 219 237 253 n.m. 11.7%

Adj. EBITDA 310 450 561 631 691 743 786 819 847 877 907 939 968 19.1% 3.9%
% Margin 24.5% 22.1% 23.0% 23.4% 23.7% 24.0% 24.3% 24.3% 24.3% 24.3% 24.3% 24.3% 24.3% -0.5pp 0.3pp
Adj. EBITDA ex. IFRS 16 276 399 505 568 624 671 711 741 766 793 820 850 876 19.4% 3.9%
% Margin 21.9% 19.6% 20.7% 21.1% 21.4% 21.7% 21.9% 22.0% 22.0% 22.0% 22.0% 22.0% 22.0% -0.2pp 0.3pp
Adj. Net Income (KRSA) 51 49 56 76 153 198 229 253 273 293 313 334 353 31.3% 8.6%
Adj. Net Income (XP) 42 39 44 61 136 180 210 232 252 271 290 311 330 33.9% 9.0%

Sources: XP Research, Company EQUITY RESEARCH 31

XP Estimates – Kora Saúde January 24, 2023
Healthcare

Balance Sheet 2021A 2022E 2023E 2024E 2025E 2026E Cash Flow 2021A 2022E 2023E 2024E 2025E 2026E
Cash & Equivalents 397 785 468 452 427 434 EBITDA 206 390 561 631 691 743
Accounts Receivable 489 391 753 793 854 900 Cash Taxes (50) (79) (29) (38) (67) (84)
Inventories 69 87 97 105 113 119 Working Capital (242) 107 (345) (24) (47) (35)
Other Current Assets 47 114 132 144 155 164 Other Adjustments 10 78 - - - -
Current Assets 1,002 1,377 1,450 1,495 1,550 1,617 CF Operations (75) 496 187 569 578 624
Other Assets 143 222 228 218 196 165 Capex (1,379) (339) (85) (94) (146) (155)
Investments 7 7 7 7 7 7 Other Investments (765) (265) - - - -
PP&E 695 886 883 887 924 965 CF Investments (2,144) (604) (85) (94) (146) (155)
RoU 323 361 384 410 439 469 Financial Result (130) (342) (389) (372) (323) (305)
Intangible 1,772 2,001 1,956 1,923 1,911 1,905 Change in Debt 1,375 858 - (100) (100) (100)
Noncurrent Assets 2,940 3,476 3,458 3,445 3,477 3,510 Lease Principal (0) (7) (16) (7) (16) (19)
TOTAL ASSETS 3,942 4,853 4,909 4,940 5,028 5,128 Noncontrolling Dividend - (1) (10) (12) (13) (15)
Suppliers 245 318 355 387 415 436 Other Financing 48 11 0 0 0 (0)
Debt 366 572 572 551 530 509 Capitalization/Reduction 1,086 (18) - - - -
Leases 39 45 48 51 55 58 Controlling Dividends (4) (3) (3) 0 (5) (24)
Other Current Liabilities 55 32 33 52 81 102 Other Equity 62 (1) (0) 0 (0) 0
Current Liabilities 706 967 1,008 1,042 1,081 1,105 CF Financing 2,436 497 (419) (491) (457) (462)
Debt 1,489 2,140 2,140 2,062 1,983 1,904 Change in Cash 216 388 (317) (17) (25) 7
Lease Obligations 314 353 371 401 426 450
Other Liabilities 107 151 141 128 115 100 Ratios 2021A 2022E 2023E 2024E 2025E 2026E
Noncurrent Liabilities 1,911 2,644 2,652 2,590 2,523 2,454 Net Debt 1,812 2,326 2,663 2,613 2,566 2,486
TOTAL LIABILITIES 2,617 3,611 3,660 3,632 3,604 3,559 Net Debt ex. IFRS16 1,458 1,927 2,244 2,161 2,085 1,978
Controlling Equity 1,251 1,159 1,163 1,219 1,332 1,473 Invested Capital 3,137 3,568 3,912 3,921 3,990 4,055
Non-Controlling Equity 74 83 85 88 92 95 ND/EBITDA 5.9x 5.2x 4.7x 4.1x 3.7x 3.3x
TOTAL EQUITY 1,325 1,242 1,249 1,308 1,424 1,569 ND/EBITDA ex. IFRS16 5.3x 4.8x 4.4x 3.8x 3.3x 2.9x
Adj. ROIC 9.2% 5.7% 7.8% 8.4% 9.6% 10.3%
Adj. ROE 5.8% 3.2% 3.8% 5.1% 10.7% 12.8%
Payout Ratio n.m. n.m. 21.1% n.m. 3.1% 11.9%

Sources: XP Research, Company EQUITY RESEARCH 32

 Healthcare

Main Risks
EQUITY RESEARCH 33
Main Risks January 24, 2023
Healthcare

Currently, there is a high degree of uncertainty regarding Brazil’s economy. Although being more defensive than other sectors, the
healthcare industry is not entirely immune to a macroeconomic deterioration, what may affect the company’s ability to deliver growth Macro Scenario
and profitability, as well as the return thresholds required by investors.

We are seeing the health plan market decelerate. In case the trend is maintained, we believe that hospitals will face challenges to
maintain a high utilization rate and to make the expansion plans profitable.
Market Growth

Most payors are bearing high MLR levels, and this pressure is passing on to providers as (i) lower than inflation price adjustments, (ii)
longer payment terms, and (iii) higher disallowance (“glosas”) rates. Should payors take longer than expected to recover their margins, Industry Recovery
we expect providers’ financial performance to deteriorate.

Lawmakers recently approved the nursing professionals’ minimum wage, which has the potential to create substantial cost pressure
for healthcare providers. Although the Supreme Court has suspended the law, it is unclear for how long it will remain suspended, and Regulatory Environment
when the suspension is terminated whether the law will be changed.

Hospital operators have made a large number of acquisitions in the last few years, and some of the integration processes are still on
going. In case the integration processes do not go as expected, the companies may not deliver the expected results.
M&A Integration

The sector underwent a consolidation process recently, and we expect this to continue when the macro conditions allow. As the
Competition
sector becomes less fragmented, we expect competition to become fiercer.

Source: XP Research EQUITY RESEARCH 34

Disclaimer January 24, 2023
Healthcare
1) This report was prepared by XP Investimentos CCTVM S.A. ("XP Investimentos or XP") according to the requirements provided in CVM Resolution 20/2021 and aims to provide information that can help the investors make their
own investment decisions, and does not constitute any kind of offer or purchase request and/or sale of any product. The information contained in this report is considered valid on the date of disclosure and has been obtained
from public sources. XP Investimentos is not liable for any decisions made by the customer based on this report.
2) This report was prepared considering the product risk classification in order to generate allocation results for each investor profile.
3) The signatory of this report declare that the recommendations reflect solely and exclusively their personal analyses and opinions, which have been produced independently, including in relation to XP Investimentos and which are
subject to modifications without notice due to changes in market conditions, and that their remuneration are indirectly affected by revenue from business and financial transactions carried out by XP Investimentos.
4) The analyst responsible for the content of this report and the compliance with CVM Resolution 20/2021 is indicated above, and, in the event of an indication of another analyst in the report, the person responsible will be the first
accredited analyst to be mentioned in Report.
5) XP Investimentos’ analysts are obligated to comply with all the rules laid down in the APIMEC’s conduct code for the securities analyst and XP Investimentos’ analyst of securities conduct policy.
6) Customer service is carried out by XP Investimentos employees or by autonomous investment agents who perform their activities through XP, in accordance with CVM Resolution 16/2021, which are registered in the national
association of brokers and distributors of securities (“ANCORD”). The autonomous agent of investment may not provide consulting, administration or management of customer net worth, and must act as an intermediary and
request prior authorization from the client for the realization of any operation in the capital market.
7) The products presented in this report may not be suitable for all types of customer. Before making any decisions, customers should ensure that the products presented are suitable for their investor profile. This material does not
suggest any change of portfolio, but only guidance on products suitable to a certain investor profile.
8) The profitability of financial products may present variations and their price or value may increase or decrease in a short period of time. Past performance is not necessarily indicative of future results. Performance disclosed is
not net of any applicable taxes. The information present in this material is based on simulations and the actual results may be significantly different.
9) This report is intended exclusively for to the XP Investimentos’ network, including independent XP agents and XP customers, and may also be released on XP’s website. It is prohibited to reproduce or redistribute this report to
any person, in whole or in part, whatever the purpose, without the prior express consent of XP Investimentos.
10) XP Investimentos’ ombudsman has the mission to serve as a contact channel whenever customers who do not feel satisfied with the solutions given by the company to their problems. The contact can be made via telephone
0800-722-3730 if you are in Brazil or via ombudsman form if you are in other localities: ttps://institucional.xpi.com.br/ouvidoria.aspx/.
11) The cost of the transactions billing policies are defined in the operational cost tables which are made available on XP Investimentos' website: www.xpi.com.br.
12) XP Investimentos is exempt from any liability for any damages, direct or indirect, that come from the use of this report or its contents.
13) Technical analysis and fundamental analysis follow different methodologies. Technical analysis is performed following concepts such as trends, support, resistance, candles, volume, and moving averages, amongst others.
Fundamental analysis uses as information the results disseminated by the issuing companies and their projections. In this way, the opinions of fundamental analysts, who seek the best returns given the market conditions, the
macroeconomic scenario and the specific events of the company and the sector, may differ from the opinions of technical analysts, which aim to Identify the most likely movements on asset prices, using "stops" limit possible
losses.
14) For the purpose of verifying the suitability of the investor's profile to the investment services and products offered by XP Investimentos, we use the methodology of suitability of products by portfolio, in accordance with the
ANBIMA Suitability Rules and Procedures 01 and the ANBIMA Regulation Code for Investment Product Distribution Practices. This methodology consists of assigning a maximum risk score for each investor profile (conservative,
moderate and aggressive), as well as a risk score for each of the products offered by XP Investimentos, so that all clients can have access to all the products, as long as they are within the amounts and limits of the risk score
defined for their profile. Before applying to the products and/or contracting the services that are the subject of this material, it is important to verify that the current risk score supports the application in the products and/or the
contracting of the services in question, as well as if there are volume limitations, concentration and/or amount for the desired application. You can consult this information directly at the time of transmission of your order, or by
consulting the general risk of your portfolio on the portfolio screen (Risk View). If your current risk score does not support the intended application/contracting, or if there are limitations in relation to the amount and/or financial
volume for said application/contracting, this means that, based on the current composition of your portfolio, this application is not suitable for your profile. In case of doubts about the process of adapting the products offered by
XP Investimentos to your investor profile, consult the FAQ. The recommended duration of the investment is short-term and the client's assets are not guaranteed in this type of product. Market conditions, climate change and the
macroeconomic scenario may affect investment performance.
15) This institution is adhering CVM Resolution 16/21.

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EQUITY RESEARCH 36