IHH Healthcare (IHH) reported a record high quarterly revenue of RM5142.4m, mainly due to a one-off gain amounting to RM862.1m from the sale of its education arm, International Medical University (IMU). The group’s 1QFY23 net profit stood at RM329.9m (-19% YoY). After stripping out the MFRS129 effect, core net profit was at RM451.7m, representing a 11% YoY growth. The results came in within our and street’s expectations at 26% and 27% of full-year forecasts respectively. We tweak our earnings forecasts by 1-2% mainly due to housekeeping changes. Maintain our Outperform rating on IHH with a higher SOTP-based TP of RM7.63 (previously RM7.50) as we roll over our valuation to FY24 based on 20x EV/EBITDA. On a side note, IHH declared a special dividend of 9.6sen from the divestment of IMU, representing a 100% payout of the gains from sale.

• Results highlight. IHH’s 1QFY23 revenue rose 24% YoY to RM5.1bn attributed to the strong recovery in 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 (+41.4% YoY), India (+8.5% YoY) and Turkey (+13.9% YoY), while Singapore has seen a slight drop of 2% YoY.

• 1QFY23 EBITDA increased by 15% YoY to RM1.15bn after stripping out the effect of MFRS. This was mainly driven by higher revenue offset by higher cost of operations, donations for Turkiye’s earthquake incident, and partial erosion from weaker Lira against Ringgit. EBITDA margin rose 20.7ppts YoY to 44.6% in 1QFY23.

• Outlook. Looking ahead, the Group has outlined plans to expand its bed capacity by over 2,000 beds in Malaysia, India, and Turkiye within the next three years, while actively exploring additional strategic opportunities to cater to the growing healthcare demand locally and within the region. However, we believe inflationary pressure on nursing staff costs and energy will lead to a lower margin in the short term. 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 - 1 Jun 2023