IHH’s 1QFY24 results met expectations. Its 1QFY24 core net profit rose 22% YoY driven largely by lower tax. Its EBITDA eased 2% despite a 16% growth in its top line suggesting that price hikes were outpaced by cost inflation. We believe scale will be critical to its operating performance in coming quarters. We maintain our forecasts, TP of RM7.00 and OUTPERFORM call.

Its 1QFY24 core net profit met expectations at 22% and 23% of our full- year forecast and the full-year consensus estimate, respectively. No dividend was declared during the quarter as expected.

YoY, its 1QFY24 revenue increased 16% driven by significant pick-up in its operations across the board driven by sustained demand, a case-mix of more acute patients and price adjustments to counter inflation. Overall, its revenue per inpatient admissions were largely higher across the board - higher in Malaysia (+10%), Türkiye (+51%) and India (+11%) and Singapore (+15%). Inpatient admissions were largely flat at 1%-3% across the board. However, its EBITDA fell 2%, we believe, weighed down by higher cost. Nonetheless, its core net profit rose 22% due to lower tax.

QoQ, its 1QFY24 revenue rose 13% largely due to higher revenue per inpatient and a mixed bag of inpatient admission across its key markets, from a low base in 4QFY23 (due to lower patient throughput during the year-end holiday and festive season). Overall, its inpatient admissions were higher in Singapore (+3%), Türkiye (+2%) but lower in Malaysia (- 5%), and flat in India. In addition, revenue per inpatient also rose across the board including Türkiye (+24%), Malaysia (+5%), Singapore (+1%) and India (+6%). Its core net profit rose by a sharp 52% on gain of operating scale.

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. Maintained

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 - 30 May 2024