• 3Q23 core net profit (ex. deferred tax expense) was RM572.4m, bringing 9M23 core net profit to RM1.35bn, in-line at 75.1% of our FY23F estimates.

• The return of both local and foreign patients, a higher case mix of acute treatments and price adjustments helped drive better profitability in 3Q23.

• Reiterate Add with an unchanged SOP-based TP of RM7.70. IHH’s analyst briefing will be held on the morning of 1 Dec 23.

Core Revenues Recovered in 3Q23

• Revenue grew 26.8% yoy to RM5.83bn in 3Q23, bringing 9M23 revenue to RM15.6bn, ahead of expectations at 78.0%/80.1% of our/Bloomberg consensus’ FY23F estimates.

• Apart from an organic improvement in operational metrics with the return of patients, a better case mix and price adjustments, there was incremental revenue impact from the continuous ramp-up of operations at Atasehir Hospital since its opening in Sep 22, Gleneagles Hong Kong, as well as contribution from Ortopedia Hospital and Kent Hospital that were acquired over the past year.

• Bed occupancy rate (BOR) across the group reached 70% in 3Q23, up from 67% in 2Q23. No BOR data was provided for each country.

• IHH recognised a 3Q23 net loss of RM62.3m from its cross-currency swaps and foreign exchange forward contracts, which resulted in h igher net finance costs of RM230.7m.

• The persistent hyperinflationary environment in Turkey also led to higher depreciation and amortisation as a result of the reindexation of its assets in Turkey.

Hospital and Healthcare Operational Statistics at a Glance

• 3Q23 Singapore revenue grew by 19% yoy: inpatient admissions improved by 1% yoy, but revenue per inpatient increased by 17%, likely benefitting from the return of foreign patients as well as positive translation effects from the appreciation of S$ against RM, in our view.

• 3Q23 Malaysia revenue grew by 18% yoy: inpatient admissions improved 11% yoy, while revenue per inpatient increased 6%, which we think benefitted from an increasing proportion of foreign patients.

• 3Q23 India revenue grew by 11% yoy: inpatient admissions increased 2% while revenue per inpatient increased 8%, likely from a higher case mix of acute patients, in our view.

• 3Q23 Greater China revenue grew by 24% yoy: no operational data was provided but EBITDA fell 72% qoq to RM9.1m, which we believe was from incremental gestational losses from Parkway Shanghai.

• 3Q23 Turkey & Europe revenue grew by 37% yoy: inpatient admissions increased 8% while revenue per inpatient jumped 40% following price adjustments to counter the impact from the hyperinflationary environment in Turkey.

Reiterate Add

• IHH has identified the potential addition of 4,000 beds in existing facilities across all markets with the exception of Singapore and Greater China over the next five years. IHH had previously guided for an additional c.2,000 beds organically by FY24F.

• IHH will also continue to evaluate its portfolio of hospitals in pursuit of profitable growth. On 24 Nov 23, IHH also announced that its Indian subsidiary, Fortis Healthcare, will be divesting Fortis Malar Hospital for an aggregate consideration of Rs1.3bn (c.RM71.9m), which is valued on a slump sale basis due to going concern. Given that Fortis has a portfolio of 31 hospitals as of FY22 and the likelihood of losses in Fortis Malar, we think the transaction is positive for IHH to right-size its footprint in India.

• Re-rating catalyst: announcement of divestment or strategic partner for Parkway Shanghai, approval for IHH to commence its mandatory open offer for an additional stake in Fortis.

• Downside risks: margin compression from rising inflation, as well as higher losses arising from assets in the gestational phase.

Source: CGS-CIMB Research - 1 Dec 2023