Key takeaways from IHH’s 2Q23 analyst briefing:

2Q23 Review

To recap, IHH posted outstanding growth across all markets with a 2Q23 revenue of RM5.1bn, an increase of 18% YoY (excluding MFRS 129) while EBITDA rose 10% to RM1.1bn. Malaysia’s operation reported higher inpatient admissions (+16% YoY) and revenue per admission (+4% YoY). The softer EBITDA margin (-3.3 pts QoQ) is temporary due to the 2 long holidays in 2Q23. Singapore’s operation remained consistent as 2Q23 revenue and EBITDA grew by 10% and 3% YoY respectively. Management added that the new Proton Therapy Centre is ahead of expectations in terms of revenue. As for Hong Kong, management shared that Gleneagles Hong Kong (GHK) achieved EBIT positive in 2Q23, 2 quarters ahead of its intended target.

Meanwhile, India’s 2Q23 EBITDA margin declined 2.6 pp YoY to 14.4% despite higher revenue of 11% due to one-off expenses (regulatory to improve fire standards). In Türkiye & Europe, 2Q23 revenue and EBITDA rose 40% and 20% respectively. However, EBITDA margin declined 3.2 pp YoY to 19.1% due to: i) 2 major holidays, ii) election and iii) earthquake in 1Q23.

Expect a Strong 3Q23

We expect Malaysia’s inpatient and outpatient volumes to be strong in 3Q23. Management added that occupancy rates in some hospitals are above 90% during the weekdays. In India, we expect EBITDA margin to improve driven by removal of under-performing assets, ramp up productivity and recovery of medical travel. With the on-going transaction to raise its majority stake (from 74% to 98%) in Gleneagles Global Hospitals chain, IHH will be able to strengthen RGE group’s operations and expand its leading market position. Meanwhile we expect GHK to further improve as growth will come from higher foreign patients and expansion of cluster offering such as clinics and laboratories. As for Turkey, we are confident that 3Q23 operational numbers will be higher than 2Q23 despite the summer season (lower quarter normally) following the rebound in tourism numbers and domestic patients.

In all, we expect a positive upwards momentum in 3Q23 as demand for good quality healthcare remains strong. IHH will continue to drive operational efficiencies by improving procurement synergies, investing into innovation and raising occupancy rates. We expect FY23 EBITDA margin to increase to 23.4% (vs. 21.5% in 2Q23).

Continuing its Organic Growth Path

Moving forward, management guided that CAPEX will be at RM1.5bn to RM2bn per annum. Over the next 3 years, IHH plans to raise the number of new beds by 25% (or about 3,000 beds) across India (+1,400 beds), Malaysia (+600 beds), Türkiye (+380 beds), Europe (+200 beds) and Hong Kong (+180 beds).

We believe that the acquisition of the 82 beds Timberland Medical Centre (to be completed by 1H24) will bode well for the group given that IHH has no presence in East Malaysia. IHH plans to scale up TMC’s operations via a new 200-beds tertiary hospital in Central Kuching (to be completed by 2026), which will attract more medical tourists and provide a higher revenue intensity. Meanwhile, the group continues to seek earnings-accretive assets across Asia and Europe.

Impact

Maintain our FY23-FY25 earnings estimates.

Valuation

Reiterate Hold on IHH with an unchanged target price of RM6.30/share based on SOTP valuation.

Source: TA Research - 1 Sept 2023