• IHH demonstrated commendable growth in 9MFY23, substantiating the forecasted +11% CAGR in core earnings for FY22-FY25F.

• We expect its stellar record to continue, supported by improved hospital activities and organic growth.

• 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, and 11% for Acibadem.

Solid growth in patient volume

In 9MFY23, IHH's top-line improved by +19.1% YoY. This admirable performance was supported by strong revenue growth across key markets (Singapore: +10% YoY, Malaysia: +18% YoY, India: +24% YoY, Turkiye & Europe: +22% YoY). Nonetheless, IHH recorded a lower 9MFY23 core net profit of RM1,014mn (-2.6% YoY) due to higher-than-expected taxes 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 unrecognized tax losses from subsidiaries in operational or start-up phases.

Earnings to be driven by organic growth

IHH has a greater exposure compared to other healthcare players, and it can capitalize on this advantage through its extensive hospital network spanning Malaysia, Singapore, Turkey, and India. It's worth noting that IHH aims to expand its presence in Europe, intending to attract more medical tourism to its hospitals in Turkey. We anticipate substantial growth in IHH's health tourism segment in FY24, supported by an expected increase in foreign visitors. Our economists project Malaysia’s tourist numbers to reach more than 26mn in 2024, compared to an anticipated arrival of over 20mn tourists in 2023. Additionally, we expect the group's earnings to thrive through organic growth. IHH plans to sustain its organic growth path by expanding bed capacity by approximately 25%, adding close to 3,000 new beds across Malaysia, India, Turkey, and Europe over the next three years. 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, (iv) organic growth, and (v) 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 SOP valuation with a WACC of 7% for Parkway Pantai Limited, and 11% for Acibadem.

Downside risks to our call

The downside risks to our call include: (i) currency volatility, which may impact medical tourism, (ii) a prolonged shortage of nurses, (iii) a sudden surge in operating costs, and (iv) increasing competition from private hospital players.

Source: BIMB Securities Research - 16 Jan 2024