IHH is committed to sustainability efforts through its aspiration to “Care. For Good” which is an integral part to IHH’s sustainable growth, and forms the backbone of the group’s Environmental, Social and Governance (ESG) roadmap. Pending further improvement on its ESG initiatives, we maintain our overall ESG score for IHH at 3 stars. We maintain our forecasts, TP of RM7.00 and OUTPERFORM call.

We came away from IHH’s dialogue on ESG feeling positive on its sustainability efforts and initiatives. The key highlights are as follows:

Care. For Good. IHH is committed to sustainability efforts through its aspiration to “Care. For Good” that encompasses the four Ps’ including care for its patients, people, the public and planet. It forms an integral part to IHH’s sustainable growth and forms the solid foundation of the group’s Environmental, Social and Governance roadmap.

Specifically, IHH is driving positive change across its key pillars namely Patients, People, Public and Planet, by leveraging its overseas presence, strong partnerships and resources, with time-bound, measurable targets for each pillar (see exhibit 5). Moreover, IHH is driving transparency and patient-centric initiatives for the healthcare sector such as value-driven outcomes (VDO) to facilitate better medical recommendations and treatments while optimising costs. Apart from that, IHH would enhance the Antimicrobial Stewardship Programme to promote and educate responsible use of antimicrobials (including antibiotics) to reduce antimicrobial resistance (AMR), leveraging on artificial intelligence (AI) to provide more cost efficiency and transparency and reducing disease burden through collaborative partnerships to alleviate public healthcare pressures and demands.

Pillar 1 (Patient) – empowering patient. Looking ahead, IHH will embrace opportunities and take on the challenges as it sharpens and deepens its sustainability focus across all four pillars. In a bid to empower its patients, it will among others expand the scope of ValueDriven Outcomes (VDO) programmes to include more procedures and treatments, establish baseline data and progressively implement improvements across all IHH hospitals, to achieve one-hour admission from doctors’ instructions at accident and emergency (A&E) by year 2025 and launch AI bill estimator progressively in other markets and develop an AI package builder to build more accurate surgery packages.

The goal is to achieve 90% of VDO at or above international benchmarks for 226 indicators across 8 VDO procedures by 2025. Since the implementation of value-driven outcomes (VDO) strategy in 4QCY20, it has already doubled VDO procedures from four to eight. This number reflects the high volume of medical procedures, and conditions of significant health importance that are being handled across IHH. Thus far in 2023, it has achieved 96% for 157 outcomes indicators.

In terms of clinical quality indicators (CQI), IHH established baseline at 113 in 20CY22. It is targeting this number to increase two-fold to 226 in year 2025. Typically, more indicators are likely to lead to a more accurate monitoring and tracking of clinical performance and outcomes in areas including surgical site infections, hospital-acquired infections, inpatient falls, and management of diabetes and hypertension.

Pillar 2 (People) – To be the best employee of choice. It is embarking on a journey to be an employer of choice in private
healthcare in all its markets by 2025. As part of this milestone, IHH aims to achieve equal gender representation in leadership
roles by 2025. It is committed to upskilling its talent pool and promoting employee well-being. For the people pillar, the group will
build on all four facets of its Belonging, Equity, Acceptance and Diversity guideline launched in 2022, including reviewing all
human resources policies and processes to minimise bias, roll out total well-being framework across its network to support
employees and prevent burnout and work towards ISO45001 certification in tandem with internationally recognised occupational
health and safety management system standards.

As an indication, it has put in place structured initiatives at the Group, country and operating unit level that cover the three
prongs of Boosting Recruitment, Strengthening its Internal Talent Pipeline and Enhancing Employee Experience. These
initiatives are further reinforced by data and analytics, which seek to identify and address gaps in the system. For example,
through a pilot Exit Survey for Nurses initiative that was launched in several of its key markets, the group is able to gain valuable
insights on nurse attrition, such as new nurses feeling a lack of transition support. This subsequently led to the development and
design of a programme to provide specialised mentoring support for these new nurse joiners.

Pillar 3 (Public) – Nurturing a healthier society. In nurturing a healthier society, IHH will enhance the Antimicrobial
Stewardship Programme (AMS) to equip all its hospitals to implement interventions to prevent AMR, in line with Centres for
Disease Control and Prevention, World Health Organisation and national guidelines. Part of this effort includes developing AMR
education programmes that target healthcare workers and the public, extend the flagship Life Renewed programme aimed at
broadening quality healthcare access to underserved communities to other key markets, starting with Singapore in 2023.

Note that antimicrobials – including antibiotics, antivirals, antifungals, and antiparasitics – are a cornerstone of modern medicine
that treat, prevent, or control the spread of infectious diseases. Unfortunately, as microbes evolve and become resistant,
antimicrobial treatments become less effective, giving rise to AMR. AMR is a top 10 global public health threat. In 2019, it was
estimated that bacterial AMR was linked with 4.95 million deaths and directly responsible for 1.27 million deaths globally. To put
this into perspective, AMR causes more deaths than HIV/AIDS or malaria annually or close to the combined COVID-19 death toll
in 2020 and 2021.

As part of this social responsibility, IHH Singapore is working with Para Athletics (Singapore) to provide para-athletes with
complimentary nutrition consultancy, medical assessment, investigation, and treatment. In Malaysia, IHH is fully sponsoring radiotherapy and radiosurgery for 481 patients who were undergoing treatment at government hospitals. This forms part of a partnership forged between IHH Malaysia and Malaysia’s Ministry of Health in 2022, which was renewed in February 2024 for
another 500 cancer patients (upon the fulfilment of the first 500 cancer patients). This programme also offers free medical
treatment and surgery sponsorships for hole in heart treatments, cataract, and total knee replacement.

Pillar 4 (Planet) – To reduce carbon footprint. In terms of the Planet pillar, it is taking pro-active initiatives to put the brakes on
climate change. To cap carbon emissions while growing the business, the group is expected to start strategising for baseline
Scope 3 emissions across its value chain in 2023, as aligned to target to be Science Based Targets initiative-ready by 2025 and
to establish science-based pathway to Net-Zero by 2050. Case in point, IHH is proud to be the first healthcare partner of the
WWF-Singapore's (World Wide Fund for Nature Singapore) Plastic ACTion (PACT) Initiative. Specifically, by partnering with
WWF PACT, IHH aims to make a real impact in reducing plastic waste and to champion sustainability initiatives by sharing its
success stories. IHH targets to reduce 90% single-use virgin plastics in non-clinical areas starting with Singapore and Malaysia
markets in 2023 and scale this commitment to other markets globally.

As part of its commitment to reduce carbon footprint by 2025, IHH expects all its Malaysia hospitals will transition to solar power.
In fact, solar panels are already installed in 8 of its 17 hospitals, making IHH Malaysia a leader in sustainability and renewable
energy in private healthcare. As one of the largest healthcare providers in Malaysia, it acknowledges that energy consumption is
its largest source of direct greenhouse gas emissions, accounting for over 75% of IHH carbon footprint. With the installation of
solar panels across its network of hospitals encompassing Gleneagles Hospitals, Pantai Hospitals, Prince Court Medical Centre
and Timberland Medical Centre, IHH is able to transition to renewable energy and reduce greenhouse gas emissions. With
Pantai Hospital Laguna Merbok, Gleneagles Hospital Penang, Pantai Hospital Klang, Pantai Hospital Cheras, Prince Court
Medical Centre, Pantai Hospital Kuala Lumpur, Pantai Hospital Ampang, and Pantai Hospital Batu Pahat already harnessing
solar power, they are a step closer towards achieving Net-Zero carbon emissions by 2050.

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.

Following the analyst briefing, while we are positive on steps taken by IHH on its ESG initiatives, pending further improvements,
we retain our overall ESG score for IHH at 3 stars.

Forecasts. Maintained.

Valuations. We also keep our SoP-TP of RM7.00 (see Page 6). There is no adjustment to our TP based on ESG given a 3-star
rating as appraised by us (also see Page 4). IHH trades at 12x EV/EBITDA compared to 20x that Columbia Asia paid for Ramsay
Sime Darby Health Care in Nov 2023. The private healthcare sector has attracted significant attention from investors of late due to:
(i) the recent acquisition of Ramsay Sime Darby Health Care by Columbia Asia Healthcare (at premium valuations), and (ii) the
impending listing of Sunway Healthcare Group (potentially also at premium valuations). KPJ (MP; TP: RM1.95) and SUNWAY
(UP; TP: RM2.47) have seen their share prices rising 30% and 93% YTD.

Investment case. 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 - 5 Aug 2024