We maintain HOLD on IHH Healthcare (IHH) with a higher DCFderived fair value (FV) ofRM6.34/share (from RM6.22/share previously) (WACC of 8.8%; terminal growth rate of 2%) to account for higher earnings estimates, which implies FY24F P/BV of 1.8x, at a 10% discount to its 5-year average of 2.0x. Our FV incorporates a 3% premium with our unchanged ESG rating of 4- star.
IHH’s 9MFY23 core net profit of RM1bil generally came in above our expectation, accounting for 80% of our earlier FY23F earnings, but below street’s at 60%. As a comparison, 9M accounted for 67%-75% of FY18-22 core net profit.
The deviation from our forecast was mainly due to better-than-expected 3QFY23 revenue driven by stronger inpatient admissions (IA) for Malaysian hospitals and higher revenue/IA for Singaporean and Acibadem’s operations.
Hence, we raised FY23F/24F/25F earnings by 7%/4%/1% to account mainly for higher assumptions of IA for Malaysian hospitals and revenue/IA for Singapore & Acibadem’s operations.
No interim dividend was declared in 3QFY23 as expected. In the last analyst briefing, IHH guided that dividends will be declared semi-annually in 2Q and 4Q instead of annually in the past 5 FYs.
On a YoY basis, IHH registered a commendable 3QFY23 revenue growth of 27% to RM5.8bil, mainly driven by continued strong recovery of both local and foreign patients seeking non-Covid treatments, particularly at IHH’s hospitals in Malaysia and Acibadem, commencement of operations at Atasehir Hospital in Sep 2022, continuous ramp-up of operations at GHK Hospital, as well as acquisitions of Ortopedia in Aug 2022 and Kent in Feb 2023.
In addition, the stronger revenue was also boosted by better product mix with more acute patients, weaker MYR and price adjustments to counter inflation, particularly for Acibadem’s operations. Hence, revenue/IA improved across the board by 6%- 25%. Consequently, IHH’s 3QFY23 core net profit increased by 17% YoY to RM369mil.
On a QoQ basis, IHH's 3QFY23 revenue rose by 25%, primarily due to higher IA in Malaysian hospitals and improved revenue/IA in Acibadem and Indian operations as a result of better case mix and price adjustments. Hence, 3QFY23 core net profit improved by 17%.
Going into 4QFY23F, we expect revenue to be stronger QoQ as 4Q historically tends to be higher than 3Q in FY18-22.
We deem that the stock is trading at a fair FY24F P/BV of 1.7x vs. its 5-year average of 2.0x amid slowing global economic growth prospects.
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