IHH Healthcare Berhad (IHH)’s 1Q23 core net profit was in line with our but above consensus expectations, accounting 29.8% and 36.5% of full year estimates respectively. Net profit rose by +>100% YoY fuelled by a one-off gain from the sale of International Medical University (IMU) and strong patient volume growth. However, after excluding the exceptional items (including IMU one-off gain amounting to RM862.1mn) IHH recorded core earnings of RM538.8mn (+2.7% YoY). We believe IHH core operations in Malaysia and Singapore have ample room to fill up beds and ramp up occupancy in hospitals as local patients return for elective treatments. Maintain a BUY call recommendation with a 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.

• Within expectations. 1Q23 core net profit of RM538.8mn (QoQ: +>100%, YoY: +2.7%) was in line with our but above consensus expectations, accounting 29.8% and 36.5% of full year estimates.

• Dividend. The group declared a special dividend of 9.6 sen per ordinary share for FY23 from the divestment of IMU. The current dividend is equivalent to a yield of 1.7% based on current market price. We estimate total FYE23 DPS of 11 sen, translating into a yield of 1.9%.

• QoQ. IHH’s 1Q23 revenue was up by 5.9% QoQ boosted by improved hospital activities. Note that, Singapore, Malaysia and Turkey & Europe hospital inpatient admissions rose by 4%, 3% and 2% QoQ respectively. This propelled IHH core net profit to increase by +>100% QoQ, lifted as well by a low base.

• YoY/ YTD. IHH recorded the highest ever quarterly revenue in 1Q23 supported by strong revenue growth from across key markets (Singapore: +13% YoY, Malaysia: +31% YoY, India: +19% YoY, Greater China: +35% YoY, Turkiye & Europe: +45% YoY). Net profit rose by +>100% YoY fuelled by a one-off gain from the sale of IMU and strong patient volume growth. However, after excluding the exceptional items (including IMU one-off gains amounting to RM862.1mn) IHH recorded core earnings of RM538.8mn (+2.7% YoY).

• b. We believe that IHH core operations in Malaysia and Singapore have ample room to fill up beds and ramp up occupancy in hospitals as local patients return for elective treatments. This will also be aided by the return of foreign patients and therefore, medical tourism. We anticipate IHH earnings to be driven by (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. However, inflationary pressure may cap IHH’s margin expansion.

• Forecast: Unchanged

• Our call. Maintain a BUY call recommendation with 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.

Source: BIMB Securities Research - 1 Jun 2023