• IHH achieved its highest-ever quarterly revenue in 1Q23

• Drivers of IHH's earnings include (i) an increase in volume of both local and foreign patients, (ii) heightened demand for elective surgeries, (iii) the revitalization of medical tourism, and (iv) the company's strong position in the healthcare industry.

• We maintain a BUY call on IHH 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.

Boosted by solid growth in patient volume

In 1Q23, IHH achieved its highest-ever quarterly revenue, driven by substantial growth across its key markets. Revenue increased significantly in Singapore (+13% YoY), Malaysia (+31% YoY), India (+19% YoY), Greater China (+35% YoY), and Turkiye & Europe (+45% YoY). The company experienced a remarkable rise in net profit of over 100% compared to the previous year, supported by both one-off gains from the sale of IMU and robust growth in patient volume. However, after we exclude the exceptional items, including the one-off gains from IMU totalling RM862.1mn, IHH recorded core earnings of RM329.9mn, reflecting a 19% YoY decline. Moving ahead, we foresee better performance from IHH, boosted by better hospital activities.

Earnings to continue to be driven by the group’s leading brands

In order to capitalize on the reopening of international borders and meet demand from foreign patients, IHH is planning to expand its presence in Europe. This strategic move aims to attract a greater influx of medical tourism to its hospitals in Turkey. As for the Malaysian market, Prince Court stands out as a prominent brand that is expected to drive revenue growth in the medical tourism segment. Note that, Prince Court Hospital has earned a distinguished reputation as a leading healthcare facility for Malaysians, expatriates, and medical tourism patients, owing to its advancements in the field of medicine. We opine that IHH core operations in Malaysia and Singapore has ample room to fill up beds and ramp up occupancy in hospitals as local patients return for elective treatments. Drivers of IHH's earnings include (i) an increase in the volume of both local and foreign patients, (ii) heightened demand for elective surgeries, (iii) the revitalization of medical tourism, and (iv) the company's strong position in the healthcare industry.

Maintain a BUY call with TP of RM7.18

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.

Upside risks to our call include

(i) currency volatility which may impact medical tourist, (ii) prolonged shortage of nurses, (iii) sudden surge in operating costs and (iv) increasing competition from other private hospital players.

Source: BIMB Securities Research - 13 Jul 2023