• IHH achieved record-high quarterly revenue in 1Q24.
   
• Its stellar record earnings are set to continue, supported by improved hospital activities, organic growth and the group’s effort to continue ramping up productivity via the adoption of modern medical devices.

• We maintain a BUY call on IHH with a TP of RM7.17. Our valuation is derived based on sum-of-part (SOP) valuation with a WACC of 7% for Parkway Pantai Limited, and 11% for Acibadem.

Upbeat on hospital and healthcare segment

In 3MFY24, IHH Healthcare's revenue rose by 15.8% YoY to RM6.0bn driven by sustained patient volume and an increase in acute, complex cases. Key markets contributed to this growth with Singapore up by 18%, Malaysia +9%, India +20%, Greater China +24%, and Turkiye & Europe +23%. Consequently, core net profit increased by 22.1% YoY to RM403mn, aligned with expectations. The rise was attributed to ongoing demand for quality healthcare, more acute patient cases, and price adjustments to offset inflation. However, Malaysia saw a 4% YoY EBITDA decline due to initiatives to reward healthcare workers. On a quarterly basis, revenue and net profit improved by 12.5% and 51.8% respectively, with all segments showing enviable performance.

Long-term growth through expansion and medical technologies

In 1Q24, IHH acquired Timberland Medical Centre in Kuching, Sarawak, and plans to build a new 200-bed greenfield hospital this year. This expansion aims to boost medical tourism, with over 30% of patients are expected to come from Indonesia. These efforts are set to positively contribute to IHH's Malaysian operations by meeting the growing demand from both local and international patients. The scaling of infrastructure is expected to achieve economies of scale and improve operational efficiency, potentially reducing costs per patient treated. Additionally, Gleneagles Hospital Medini Johor has introduced Malaysia's first Digital PET-CT scanner, positioning it as a leader in oncology services. Since launching its oncology services in 2019, the hospital's market share in Johor has grown from 20.8% to 46%. Furthermore, the opening of the Mount Elizabeth Proton Therapy Centre in Singapore underscores IHH's leadership in comprehensive cancer care. We believe that IHH's use of innovative technologies, such as robotic-assisted surgery and generative AI for assessing patient risk factors, enhances patient engagement and offers a competitive edge.

Maintain a BUY call with TP of RM7.17

Maintain a BUY call recommendation with a TP of RM7.17. Our valuation is derived based on SOP valuation with a WACC of 7% for Parkway Pantai Limited, and 11% for Acibadem (refer table 1).

Downside risks to our call

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

Source: BIMB Securities Research - 17 Jul 2024