IHH Healthcare’s (IHH) headline net profit fell marginally to RM315m in 2QFY23. After excluding the effect of MFRS 129, core net profit dropped 10% YoY to RM401.6m in 2QFY23, mainly due to the high base effect in 2QFY22. The results came in within our and street’s expectations at 49% and 51% of full-year forecasts respectively. We make no changes to our earnings forecast, maintaining our Outperform rating on IHH with an unchanged SOTP-based TP of RM7.63, based on 19x FY24 EV/EBITDA (from 20x previously). On a side note, IHH declared an interim dividend of 3.5sen per share.

• Results highlight. IHH’s 2QFY23 revenue rose 7% YoY to RM4.7bn attributed to the higher influx of patient volume for both local and foreign patients seeking treatment in the Group’s hospitals. The boost in revenue also contributed by the commencement of Atesehir Hospital operation, ramp-up of GHK Hospitals and higher contribution from the acquisitions of Ortopedia and Kent in Turkey. The number of inpatient admissions has increased in Malaysia (16% YoY) and Turkey (+2% YoY), while Singapore and India have seen a slight drop of 4% and 1% YoY respectively. Meanwhile, IHH’s overall bed occupancy rate (BOR) remained flat at 67% in 2QFY23.

• 2QFY23 EBITDA decreased by 18% YoY to RM1.08bn, as the increase in revenue was offset by higher cost of operations and partial erosion from weaker Lira against Ringgit. EBITDA margin declined 6.9ppts YoY to 23% in 2QFY23.

• Outlook. Moving into 2HFY23, the Group has outlined plans to continue expand its bed capacity by c.3000 new beds in Malaysia, India, and Turkey within the next three years. IHH’s effort in acquiring 200-beds Timberland Medical Centre in Kuching, Sarawak and Gleneagles Global Hospitals chain with 1500 beds through 6 hospitals in Hyderabad, Chennai, Bangalore and Mumbai will strengthen its position in both Malaysia and India with a wider hospital network. However, we believe inflationary pressure on nursing staff costs and energy will lead to a lower margin in the short term. Nevertheless, we are optimistic that long-term earnings trajectory remains intact, while the Group remains committed to identifying and pursuing earnings-enhancing prospects for acquiring strategic assets in Asia and Europe.

Source: PublicInvest Research - 30 Aug 2023