We visited four key Acibadem hospitals in Türkiye and were impressed by their state-of-the-art medical equipment, and ambience akin to that of 5-star hotels. In fact, IHH’s Acibadem brand has set the benchmark for private healthcare service excellence in Turkiye and Central and Eastern Europe. We maintain our forecasts, TP of RM7.00 and OUTPERFORM call.

We recently visited IHH’s operations in Türkiye operations. Hosted by IHH Istanbul, the key representatives include Mehmet Ali Aydinlar (Chairman, Acibadem Saglik Yatirimlari Holding A.S. (ASYH) and Evren Gence (Deputy CEO, Strategy and Business Development, ASYH).

Istanbul, the vibrant and culturally rich city straddling between Europe and Asia, has emerged as a prominent hub for health tourism, leveraging on its rich history, vibrant culture, and warm hospitality. Patients and their companions can explore iconic landmarks like the Hagia Sophia, Topkapi Palace, and the Blue Mosque, immersing themselves in the city's unique blend of Eastern and Western influences.

Briefly, Acıbadem Healthcare Group began its journey into healthcare services as a small neighborhood hospital in a district of Istanbul. For example, Acibadem Atasehir where Atasehir is a district in Istanbul. Fast forward, Acıbadem is a global chain operating in five countries including Turkiye, Bulgaria, Macedonia, Serbia, and the Netherlands with 24 hospitals and 14 outpatient clinics.

Foreign patients accounted for 23% in of Acibadem Türkiye’s top line in FY22, up from 16% in FY19. Acibadem Türkiye capitalises on Türkiye being bounded on the north by the Black Sea, on the northeast by Georgia and Armenia, on the east by Azerbaijan and Iran, on the southeast by Iraq and Syria, on the southwest and west by the Mediterranean Sea and the Aegean Sea, and on the northwest by Greece and Bulgaria. In 1HFY23, foreign patient revenue contribution fell to 17%, lower than the 23% in 1HFY22 due to the Türkiye earthquake, festive holidays and presidential elections.

1HFY23 foreign patient volume declined by an estimated 20%. Typically, foreign patients account for 5% of patients but contribute 23%-25% of revenue in Türkiye. The group is not perturbed by the lower contribution from Acibadem in 2QFY23 due to the festive holidays compounded by long week-end holidays as well as presidential election. Viewed as a temporary blip, it expects patients to return in subsequent quarters as already seen starting from July. Specifically, the group aim to make medical tourism convenient and reliable for thousands of international patients who visit Türkiye every year. From the moment patients arrive at Istanbul Airport until they return to their home country, the Acibadem team is by their side. Case in point is the cozy and comfortable Acibadem Health Point lounge in the airport for international patients while they wait to be escorted to their hospital or hotel. At its Health Point desks, located in hospitals, the group’s translators will be welcoming patients and support them throughout their treatment in 20 different languages. This helps support the patient throughout their healthcare journey in Türkiye.

Most of the doctors (>95%) or practitioners in Acibadem’s hospital are contracted under the revenue sharing formula and the remaining are employed under full-or-part-time agreement receiving either fixed salary or part-revenue share and part-salary.

Türkiye healthcare briefly explained. Healthcare in Türkiye consists of a mix of public and private health services. Acibadem is the largest private healthcare provider in Türkiye in terms of private patient revenue. Türkiye has a Universal Health Insurance (UHI) scheme that is provided by the Social Security Institution (Sosyal Guvenlik Kurumu – SGK). The UHI scheme provides comprehensive health care coverage through public hospitals including public university hospitals to all residents including foreigners who are working in the country. Within its network, certain hospitals operated by Acibadem Group depending on certain parameters (such as availability of complex cancer treatment as well as organ transplant) have executed the SGK Agreement. Those who are covered by SGK may also receive healthcare services in private hospitals that have agreements with SGK. In addition to the private hospitals, private medical centres may also enter into the agreement with SGK.

Currently, private hospitals can only have SGK agreement on a full scope basis. Under full SGK agreement, all clinical areas/departments within the private hospital can be utilized to serve SGK patients. In return, private hospitals may charge a premium (up to 200%) on top of the SGK tariff, plus additional charges for amenities. Even after accounting for such premiums, fees paid by full SGK patients are generally lower than that of non-SGK patients. Individuals who seek additional medical services from the private healthcare which are not contracted under SGK need to pay their medical expenses out-of-pocket, if they do not have private health insurance coverage. Furthermore, the private hospitals are not bound by these price caps when serving nonSGK patients. Despite the universal health care, total expenditure on health as a share of GDP is the lowest among OECD countries at about 5% of GDP, much lower than the OECD average of 9.3%. The median age in Türkiye is 30 years compared to 43.9 years average in EU countries. Aging population is the prime reason for higher healthcare expenditure in Europe with an average life expectancy of 77 years compared with the EU of 81 years. Generally, 67% of the population use private hospital, 24% goes to public hospitals, and 9% visit university hospitals. Türkiye has a population of 85m and Acibadem has presence in four of the five most crowded cities representing 34% of the Turkish population. These four most crowded cities constitute 50% of the GDP of Türkiye's economy. (Istanbul, Ankara, izmir, Bursa).

We visited four key Acibadem hospitals in Türkiye and were impressed by their state-of-the-art medical equipment, and ambience akin to that of 5-star hotels. In fact, IHH’s Acibadem brand has set the benchmark for private healthcare service excellence in Turkiye and Central and Eastern Europe. The hospitals are:-

i) Acıbadem Ataşehir Hospital, the most recent investment of the Group, is the 18th hospital of the Group in Türkiye and the 24th hospital at global scale. The hospital lobby area is the welcoming heart of the building, offering a comfortable and soothing environment upon arrival. A digital, data-informed artwork of blooming flowers by local artists, Hakan & Suleyman Yılmaz reflects the 145,580 newborns delivered at Acibadem’s network of hospitals and concurrently creating a visually therapeutic lobby experience while celebrating the hospital’s work and the patient experience that is inextricably part of it .Acıbadem Ataşehir Hospital is distinguished by specialized and experienced physicians, state-of-the-art devices used for diagnosis and treatment as well as the Command Center that uses artificial intelligence and digital infrastructure for management of the hospital and the ‘Environment Friendly” Hospital status with Leed Gold certificate. It has an indoor built-up area of 65,000 square metres with a capacity of 300 beds that is located adjacent to Acıbadem Holding headquarters and commenced operations in Sept 2022. The hospital has 53 observation beds, including 12 in Emergency Observation Unit, 13 Endoscopy – Angiography observation beds, 6 in Pediatric Observation Unit, 5 in IVF Unit and 15 Multidisciplinary observation beds.

It is designated as a general hospital, where specialized services are delivered in all departments/centre of excellence. Pediatrics and Oncology Departments are positioned as a clinical facility with independent entrance nearby the hospital building. The hospital has the following departments: Gynecology and Obstetrics; IVF; Perinatology; Cardiology and Cardiovascular Surgery; Medical

Oncology with a chemotherapy hall that has 34 boxes; Radiation Oncology equipped with state-of-the-art devices; Nuclear Medicine Unit; Physical Medicine and Rehabilitation; Internal Medicine; Gastroenterology; Infectious Diseases; Orthopedics; Neuro-ophthalmology; and Interventional Radiology.

There are 142 standard rooms that are designed to meet the needs of patients and their relatives. Mini-bar, television, internet and private safe are available in-patient rooms which meet all the basic needs of patients and relatives. There is one two-seater sofa in each room to help family members rest.

ii) Acibadem Altunizade is the 21th hospital of Acıbadem Healthcare Group which commenced operations in Altunizade in March 2017. Acıbadem Altunizade Hospital comprises many full-featured units along with the technical infrastructure, medical technology, professional healthcare personnel in all branches and multidisciplinary approach. The hospital has a built-up area of 98,000 square meters with capacity of 350 beds, 18 operating theatres, 75 intensive care unit beds and parking lot with capacity of 550 vehicles. A key distinguishable feature in Acibadem Altunizade is seamless connectivity amongst its operating units within the building. With a special hospital architecture highlighting patient comfort, time is saved by minimizing the walking steps between units for the patients. Examination, diagnosis and treatment are planned and practiced in many featured units and outpatient clinics including Breast Health, Ophthalmology, Spinal Health, Neurologic Sciences, Neuro-radiosurgery, Oral and Dental Health. Thus, patients receive services comfortably within a short time. Many specialized units from Oncology Unit to Neurosurgery from Cell Therapy to Robotic Surgery are located in the hospital.

iii) Acıbadem Maslak Hospital is located in Istanbul’s business and finance centre Maslak which can be reached via highway and metro rails. Put into service in 2009, Acıbadem Maslak Hospital increased the service area by 2.5 folds, after a new building (60,000 square metres) was added to the hospital within the scope of an enlargement project that was finalized in 2018. Fast forward, Maslak Hospital presently covers an indoor area of 106,000 square metres with JCI accreditation that certifies quality systems of healthcare organizations. There are 385 patient rooms in Acıbadem Maslak Hospital, including 221 standard rooms. Acibadem Maslak Hospital has 20 general surgery operating theatres, two IVF procedure theatres and 27 intensive care beds. The hospital has all the necessary advanced technological equipment ranging from three Tesla MRI, 3-dimensional imaging for prostate cancer, 4D ultrasound, Positron emission computed tomography, force CT, trilogy, cyberknife, robotic arm angio, navio robots, laser, to 4-D breast ultrasonography and many others. Specifically, Acibadem Maslak pride itself for its several best in class equipment including “Direct Accelerator (LINAC) Trilogy” gear which limits the danger of negative effect on typical tissue in malignant growth treatment; the “RapidArc” (Volumetric Modulated Arc Therapy)” innovation which decreases brief disease medications to two minutes; the “CyberKnife” which is utilized securely in the treatment of tumors that can’t be treated with ordinary radiotherapy; the “da Vinci SI” robot which performs laparoscopic strategies with automated medical procedure and the world’s quickest and most reduced radiation figured tomography “Streak CT” which can play out a heart angiogram in 0.25 seconds, and a full body tomography in four seconds work in this clinic.

iv) Acıbadem Fulya Hospital is located in one of “the most central “quarters of Istanbul and easily accessible within the city. Acıbadem Fulya Hospital offers administrations which have any kind of effect especially in the territories of sports medication, orthopedics, non-intrusive treatment and traumatology. With these traits, it is a possibility for it turning into the main benchmark association in Türkiye, and one of a minor not many players on the planet. Best in class instruments utilized at the clinic incorporate the 1.5 Tesla MR, which is characterized as “semi-open”, can without much of a stretch be used by claustrophobic patients and overweight patients; new age ultrasonography gear and computerized all encompassing x-beam. Besides, notwithstanding routine analytic investigations with the 128 indicator double vitality CT, progressed heart imaging, coronary CT angiography, CTcolonoscopy and CT-bronchoscopy can likewise be performed.

APM, an integral part of Acibadem hospitals. Interestingly, as an integral part of the entire healthcare spectrum from conceptualisation of a hospital to the finish product i.e. completion of the entire hospital built-up, Acibadem has its own internal project management entity which is known as the Acıbadem Project Management (APM) group. From the medical equipment installation, APM offers project management services by conducting all stages including planning & design to commissioning and processes of the project by using state of art technologies with its team of experts, local and global solution partners. APM aims to create digital twins of healthcare structures by using contemporary methods effectively in design and implementation activities. It is now an independent company that serves all investment areas. Acıbadem Project Management offers a complete project management service, including contract preparation, testing, and full management of the construction in cooperation with its professional team and domestic and foreign solution partners, with the aim of predicting and managing risks that may arise at any stage of the project process, including investment decision-making. The key projects undertaken by APM includes Acibadem Atasehir, (Design, Construction, Medical Planning, Project Management, Medical Equipment Procurement), St.Petersburg MultiFunctional Medical Center, Acibadem Maslak 2 Hospital and AcıbademAltunizade Hospital.

Forecasts. Maintained.

We also keep our SoP-TP of RM7.00 (see Page 7).There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (also see Page 7).

We continue to like IHH for: (i) the bright prospects of the private healthcare sector in Malaysia underpinned by rising affluence and ageing population; (ii) its pricing power, as the inelastic demand of healthcare provides it with the ability to pass cost through amidst rising inflation, and (iii) its commanding market position in the private healthcare space with presence in Malaysia, Singapore, Türkiye and Greater China. Reiterate OUTPERFORM.

Key risks to our call include: (i) regulatory risk, (ii) risks associated with overseas operations, and (iii) the lack of political will to roll out a national health insurance scheme.

Source: Kenanga Research - 18 Oct 2023