IHH’s 1HFY24 results met expectations. Its 1HFY24 core net profit rose 30% YoY driven by revenue intensity, better yields and a lower tax. We expect its earnings momentum to accelerate, underpinned by revenue intensity and rising demand in 2HFY24. We maintain our forecasts and roll forward our valuation base from FY24F to FY25F. Consequently, our SoP-TP is raised from RM7.00 to RM7.73. Reiterate OUTPERFORM call.

Its 1HFY24 core net profit met expectations at 46% each of our full-year forecast and the full-year consensus estimate, respectively. An interim dividend of 4.5 sen was declared which was within our expectation.

YoY, its 1HFY24 revenue increased 23% driven by significant pick-up in its operations across the board due to 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 (+9%), Türkiye (+51%) and India (+10%) and Singapore (+17%). Inpatient admissions rose an average 3% across the board. Correspondingly, EBITDA rose 13% driven by higher yield acute case-mix, reflecting its strategy This brings 1H24 core net profit higher by 30% to RM840m due to lower tax.

QoQ, its 2QFY24 revenue rose 3% largely due to higher inpatient admissions. Specifically, inpatient admissions were higher in Malaysia (+6%), India (+5%) and Singapore (+3%), but lower in Türkiye (-5%) due to the seasonally slower season there. On the other hand, revenue per inpatient was largely flat across the board but higher in Türkiye (+7%). Its core net profit rose by 6%.

Outlook. We believe investors should now focus on earnings catalysts in FY24 such as: (i) the return of foreign patients in Türkiye, (ii) nurse shortages resolved in Singapore and Malaysia; and (iii) improving margins arising from disposal of under-performing assets and the return of patients from Middle East and Central Asia in India. IHH trades at 12x EV/EBITDA compared to 20x that Columbia Asia paid for Ramsay Sime Darby Health Care in Nov 2023.

Looking further into 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 average of 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.

Valuations. We maintain our earnings forecasts and roll forward our valuation base from FY24F to FY25F. Consequently, our SoP-TP is raised from RM7.00 to RM7.73 (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 - 2 Sep 2024