Investment Highlights

• We maintain HOLD on IHH Healthcare (IHH) with a higher DCFderived fair value (FV) of RM6.34/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.

Source: AmInvest Research - 1 Dec 2023