IHH’s 9MFY23 results disappointed. Its 9MFY23 core net profit contracted 3% YoY despite a 19% expansion in its top line due to weak profits from Singapore and Türkiye. We take comfort in the rising trend in both its patient throughput and yields. We cut our FY23F net profit forecast by 7% but maintain our TP of RM7.00 and OUTPERFORM call.

Its 9MFY23 core net profit of RM1,014m (-3% YoY) came in below expectations at only 65% and 60% of our full-year forecast and the fullyear consensus estimate, respectively. The variance against our forecast came largely from weaker-than-expected performance from its operations in Singapore and Türkiye.

YoY, its 9MFY23 revenue increased 19% driven by the return of both local and foreign patients, a case-mix of more acute cases, price adjustments to counter inflation, the opening of Atasehir Hospital, the expansion at Gleneagles Hong Kong hospital, and the acquisition of Ortopedia Hospital. Overall, its inpatient admissions were largely higher across the board- higher in Malaysia (+21%), Türkiye (+8%) and India (+0.5%) but lower in Singapore (-2%). Revenue per inpatient rose in Singapore (+15%), Türkiye (+43%), India (+16%), and Malaysia (+3%). Consequently, its EBITDA rose 20% due to better operational efficiencies. However, its core net profit declined 3% due to lower contributions from its operations in Singapore and Türkiye. No dividend was declared in this quarter.

Outlook. Looking ahead in 2023, we expect IHH’s revenue per inpatient growth of 10%−15% (vs. 18% in 2022 due to low base effect in 2021), inpatient throughput growth of 10%−15% (vs. 10% in 2022) and bed occupancy rate (BOR) of 60%−73% (vs. 56%−70%% in 2022) for its hospitals in Malaysia, Singapore, India and Türkiye. IHH expects doubledigit top line growth in Malaysia, while staff shortages at its operations in Singapore are easing. Its operations in Türkiye should pick up as it has moved on from an earlier earthquake. Its operations in India are seeing the return of medical tourists from the Middle East and Central Asia while its hospital in Hong Kong should turn profitable by end-2023.

Forecasts. We cut our FY23F net profit forecast by 7% as we reduce our EBITDA margin assumption for operations in Singapore and Türkiye to 22% and 20% from 22.5% and 22%, respectively. However, we keep our FY24F numbers.

We also keep our SoP-TP unchanged at RM7.00 (see Page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We continue to like IHH for: (i) its pricing power, as the inelastic demand for healthcare provides it with the ability to pass cost through amidst rising inflation, (ii) the strong recovery in patient throughput, from both domestic and international markets as the pandemic comes to an end, 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 - 1 Dec 2023