IHH Healthcare (IHH) reported a headline net profit of RM520m (+41% YoY), mainly driven by higher inpatient revenue per admission, especially in the Malaysian and Turkey regions. However, IHH recorded a slight decline of 3.1% YoY in revenue to RM5.6bn in 3QFY24, mainly due to the currency effects stemming from the MFRS 129 adjustments. After excluding the impact of MFRS129 and other non-operating items, IHH's 3QFY24 core net profit declined marginally by 1.8% YoY to RM563m. The results exceeded market expectations at 91% but were in line with our expectations at 80%. However, we revise our FY24-26F earnings forecasts upward by 7-11% to account for higher patient inflows and improving inpatient revenue per admission, supported by IHH's robust bed expansion plan to increase capacity by 33% over the next four years. All in all, we reiterate our Outperform call on IHH, with a higher SOTP-based TP of RM8.64, based on 20x FY25 EV/EBITDA.

• Revenue. IHH's revenue dropped marginally by 3.1% YoY to RM5.6bn, mainly due to the currency effects arising from the MFRS 129 adjustments. We observed a rise in the overall number of inpatient admissions across all regions, including Malaysia, Singapore, Turkey and India. The Group's bed occupancy rate (BOR) improved to 73% in 3QFY24 (3QFY23:70%), with the Singapore region contributing significantly, as its BOR improved to 69% in 3QFY24, compared to 62% in 3QFY23.
• Improvement in EBITDA. IHH's EBITDA (excluding MRFS 129) rose by 12% YoY to RM1.4bn in 3QFY24, mainly driven by sustained demand for healthcare services and enhanced cost management. However, the growth in EBITDA was partially offset by higher staff and utility costs. Consequently, IHH's 3QFY24 core net profit declined slightly by 1.8% YoY to RM563m, after excluding the non-operating items and the impact of MFRS129.
• Outlook. Looking ahead, we remain positive on IHH's robust expansion strategy, which includes the acquisition of Island Hospital, a 600-bed facility in Penang, expected to generate over RM200m in synergies over the next five years. Additionally, IHH's focus on both organic and inorganic growth, optimising underperforming assets, and driving efficiencies through digitisation and value-based healthcare initiatives positions the Group to address rising demand for quality healthcare services while effectively navigating macroeconomic challenges.

Source: PublicInvest Research - 29 Nov 2024