• Keep BUY and MYR6.90 TP (SOP), 17% upside, c.2% yield. We were invited by IHH Healthcare to attend a 4-day site visit in Istanbul. We were pleasantly surprised by the advanced medical facilities at the Acibadem hospitals. Overall, we still like IHH for its solid execution strategy and reputable regional footprint across key regions, driven by its strong brand awareness and affluent clientele.

• Key takeaways. We came away from the Acibadem site visit feeling positive. Acibadem prides itself as a leading private healthcare service provider (HSP) of high-quality diagnostics and treatment services in Turkiye. Acibadem has 24 hospitals and 14 outpatient clinics across five countries, including Turkiye, Macedonia, Serbia, Bulgaria, and the Netherlands. Five of its 24 hospitals are Joint Commission International (JCI) certified for being the international gold standard for quality and patient safety. Acibadem continues to eye M&A opportunities as it plans to add a total of 580 beds (380 in Turkiye and 200 in Europe) over the next three years.

• Turkiye healthcare spending has seen tremendous growth over the past five years, at a 24.2% CAGR between 2016 and 2021, driven by a spike in non-communicable and chronic diseases such as cancer, diabetes, and chronic respiratory diseases as a result of ageing, smoking, reduced physical activity, and rising pollution. Despite the rapid growth of healthcare expenditure, total spending as a percentage of GDP was only 4.9% in 2021, trailing behind Europe’s average of 10%.

• Key financials and operating statistics. Acibadem accounted for 30% of IHH’s revenue in 2Q23, compared to 23% a year ago. The spike in segmental revenue contribution is attributed to the commencement of Atasehir Hospital (Sep 2022), and the acquisitions of Ortopedia hospital (Aug 2022) and Kent Group (Feb 2023). EBITDA margins for the segment saw a YoY contraction, impacted by the hyperinflationary environment. In terms of patient volume, the group reported 60,333 patient footfalls in 2Q23, with a bed occupancy rate (BOR) of 67%, which surpassed pre-pandemic levels.

• Earnings revision and valuation. We make no changes to our estimates. Our SOP-derived TP remains at MYR6.90, and implies 15x FY24F EV/EBITDA, in line with its 5-year historical mean. We ascribe a 0% ESG premium/discount to our intrinsic value, as IHH’s ESG score of 3.0 is in line with the country median.

• Key downside risks: Mandatory takeover offer (MTO) overhang on Fortis, lower-than-expected patient volume/revenue intensity, and higher-thanexpected operating costs.

Source: RHB Securities Research - 17 Oct 2023