• Maintain BUY (TP: RM7.18). IHH’s 9MFY23 top-line improved by +19.1% YoY. The better performance was supported by strong revenue growth from across key markets (Singapore: +10% YoY, Malaysia: +18% YoY, India: +24% YoY, Turkiye & Europe: +22% YoY). Nonetheless, IHH recorded lower 9MFY23 core net profit of RM1,014mn (-2.6% YoY) which was below our and consensus expectations, accounting for 64% and 60% respectively. The deviation against our projection was primarily due to higher-than-expected tax in the current quarter. Note that the group's effective tax rates deviate from the Malaysia statutory tax rate primarily due to specific non-taxable income, non-tax deductible expenses and unrecognised tax losses from subsidiaries in operational or start-up phases. Maintain a BUY call with lower TP of RM7.18 (from RM7.19). Our valuation is derived based on SOP valuation with a WACC of 7% for Parkway Pantai Limited, 11% for Acibadem.

• Key highlights. IHH's revenue increased by +26.8% YoY in 3Q23, attributed to a higher top-line across its key markets. In tandem, the group's net profit rose by +17.0%. It is worth noting that the Hospital and Healthcare segment experienced a +22.0% YoY rise in revenue, reaching RM5.2bn. This growth was primarily driven by a robust recovery in core non-COVID-19 revenues, with both local and international patients returning to seek treatment.

• Earnings Revision. We revised our FY23-25F earnings forecast lower by - 3.6%/-3.7%/-3.6% respectively, to a net profit of RM1.5bn/RM1.7bn/ RM1.9bn (Table 2), as we revised our tax assumptions for the respective fiscal year.

• Outlook. We believe that IHH's 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 positive trend is expected to be further boosted by the return of foreign patients and, consequently, a revival in medical tourism. Anticipating a significant growth in IHH's health tourism segment in FY24, we foresee an increase in foreign visitors. Our economists project tourist numbers to reach 24mn in 2024, compared to an anticipated arrival of over 16mn tourists in 2023.

Source: BIMB Securities Research - 1 Dec 2023