IHH’s FY23 results disappointed. Its FY23 core net profit contracted 7% despite a decent top line growth due to seemingly some operational and cost efficiency losses, and higher finance cost. We take comfort in the sustained rise in both its patient throughput and yields across markets. We cut our FY23F net profit forecast by 7% but maintain our TP of RM7.00 and OUTPERFORM call.

Its FY23 core net profit of RM1,279 missed our forecast and the consensus estimate by 10% and 20%, respectively. The variance against our forecast came largely from the absence of a significant pick-up in its operations in Singapore and Türkiye. A final dividend of 5.5 sen was declared bringing FY23 DPS to 18.6 sen which came in above our expectation.

YoY, its FY23 revenue increased 16% 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 (+17%), Türkiye (+6%) and India (+0.5%) but lower in Singapore (-1%). Revenue per inpatient rose - Singapore (+14%), Türkiye (+38%), India (+14%), and Malaysia (+4%).

However, its core net profit fell 7% due to seemingly some operational and cost efficiency losses and higher finance cost, partially cushioned by a lower effective tax rate.

QoQ, its 4QFY23 revenue fell 9% due to lower patient throughput during the year-end holiday and festive season. Overall, its inpatient admissions were largely lower across the board, i.e. Malaysia (-3%), India (-8%) and Singapore (-3%) but higher in Türkiye (+13%). Its core net profit fell by a sharper 28% due to poorer overhead absorption on reduce business volumes.

Outlook. Looking ahead in 2024, we expect IHH’s revenue per inpatient growth of 12%−16% (vs. an estimated +19% in 2023 due to low base effect in 2022), inpatient throughput growth of 9%−12% (vs. an estimated +7% in 2023) and bed occupancy rate (BOR) of 65%−73% (vs. an estimated averaging 65% in 2023) for its hospitals in Malaysia, Singapore, India and Türkiye. We believe the key growth factor for its inpatient throughput and BOR would be revenue intensity from a case- mix with more acute cases and medical tourists, the addition of new beds (previously constrained by staff shortages which are gradually easing). We expect sustained performance in Malaysia, while staff shortages in Singapore have been resolved. There is also a return of Middle Eastern and Central Asian medical tourists to its hospitals in Türkiye and India.

Forecasts. We maintain our FY24F forecasts and introduce our FY25F numbers.

Valuations. 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).

Investment case. 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, 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 Mar 2024