• We re-initiate coverage on IHH Healthcare Berhad (IHH) with a  BUY recommendation premised on (i) higher volumes of local  foreign patients, (ii) higher demand of elective surgeries, (iii)  revitalization of medical tourism and (iv) strong position in  healthcare space

• We remain optimistic on the group’s growth trajectory bolstered  by proven track record in strategic business expansion

• Positively, investors may be attracted by its dividend policy amid  a projected >20% payout ratio.

• We value IHH at RM7.18, derived based on SOP valuation. IHH is  a BUY.

A leader in premium healthcare

IHH Healthcare Berhad (IHH) is an integrated healthcare services  provider with market-leading positions in Singapore, Malaysia and  Turkey. IHH offers a full spectrum of healthcare services, ranging from  primary healthcare clinics to secondary and tertiary hospitals, to  quaternary care and post-operative rehabilitation centres. The  group’s core businesses are operated through three key subsidiaries,  namely Parkway Pantai Limited (PPL), Acibadem Holding and IMU.

Strategic expansion and developed laboratory business to drive  growth

We believe that the expansion of IHH’s clusters will allow the group  to improve operational efficiencies and also lead to cost saving in  overhead operations. As for laboratory business, we think that IHH  digital transformation journey by ramping up its laboratory  capabilities will lead to seamless offline to online healthcare  ecosystem.

Anticipate IHH to maintain more than 20% dividend payout ratio.

Historically, we learnt that the company has been paying more than  its dividend policy of 20% of net profits and this is expected to  continue in the foreseeable future. Few factors are the guiding  principles by the board in considering dividend payments, namely (i)  the amount of cash and cash equivalents, (ii) return on equity and  retained earnings and (iii) projected levels of capital expenditure and  other investments. Assuming a 32% dividend payout ratio, we expect  IHH to declare 6.6 sen/7.1 sen dividend per share for 2023E/2024F  respectively, translating into a decent 1.0%-1.2% yield at current price  level.

Re-initiate with a ‘BUY’ call and TP of RM7.18

We re-initiate coverage on IHH with a BUY call and TP of RM7.18. Our  valuation is derived based on sum-of-part (SOP) valuation with a  WACC of 7% for Parkway Pantai Limited, 11% for Acibadem and a  long-term growth of 2%.

Source: BIMB Securities Research - 2 Mar 2023